On January 1, 2013, Biggs Company granted a performance-based stock option plan to 40 executives to buy a maximum of 3,000 shares each of its $10 par common stock at $30 a share. The fair value per option is $8. The terms of the plan, which has a three-year service and vesting period, are based on the following scale:

Biggs expects an annual employee turnover rate of 3%, and the company initially anticipates an increase in sales during the service period of 18%. By the end of 2015, the actual sales increase is 17%.
a.Compute the estimated total compensation cost.
b.Compute the annual compensation expense for each of the three years.
c.Prepare the January 1, 2016, entry when 10 executives exercise their options.

Question

On January 1, 2013, Biggs Company granted a performance-based stock option plan to 40 executives to buy a maximum of 3,000 shares each of its $10 par common stock at $30 a share. The fair value per option is $8. The terms of the plan, which has a three-year service and vesting period, are based on the following scale: 
 
Biggs expects an annual employee turnover rate of 3%, and the company initially anticipates an increase in sales during the service period of 18%. By the end of 2015, the actual sales increase is 17%.
a.Compute the estimated total compensation cost.
b.Compute the annual compensation expense for each of the three years.
c.Prepare the January 1, 2016, entry when 10 executives exercise their options.

Quizplus · Accepted Answer

The Answer of On January 1, 2013, Biggs Company granted a performance-based stock option plan to 40 executives to buy a maximum of 3,000 shares each of its $10 par common stock at $30 a share. The fair value per option is $8. The terms of the plan, which has a three-year service and vesting period, are based on the following scale: 
 
Biggs expects an annual employee turnover rate of 3%, and the company initially anticipates an increase in sales during the service period of 18%. By the end of 2015, the actual sales increase is 17%.
a.Compute the estimated total compensation cost.
b.Compute the annual compensation expense for each of the three years.
c.Prepare the January 1, 2016, entry when 10 executives exercise their options.

On January 1, 2013, Biggs Company Granted a Performance-Based Stock