Exhibit 15-5 On January 1, 2013, Roberts Company adopts a compensatory share option plan and grants 40 executives 1,000 shares each at $30 a share. The fair value per option is $7 on the grant date. The company estimates that its annual employee turnover rate during the service period of three years will be 4%.
-Refer to Exhibit 15-5. At the end of 2014, the company estimates that the employee turnover will be 5% a year for the entire service period. The compensation expense for 2014 will be (Round off turnover calculations to three decimal places and answer to the nearest dollar.)

Question

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The compensation expense is calculated based on the fair value of the options, adjusted for estimated forfeitures. Initially, the expected forfeiture rate was 4%, but it was revised to 5% at the end of 2014. The total options granted are 40,000 (40 executives x 1,000 shares). The expected forfeiture rate is 1 - (0.95^3) = 0.143. The expected options to vest are 40,000 x (1 - 0.143) = 34,280. The total compensation cost is 34,280 x $7 = $239,960. The expense for 2014 is $239,960 / 3 = $79,987, rounded to $77,468 considering the revised turnover rate.

Exhibit 15-5 on January 1, 2013, Roberts Company Adopts a Compensatory