Question

On 1/1/2020, Anna and Elsa Inc. granted 500 stock options. The vesting dates, exercise price, fair values, and estimated forfeiture of the options are as follows: Tranche Vesting Date Number of Options Exercise Price Fair Value Estimated Forfeiture 1 12/31/2021 250 $25 $20 3% 2 12/31/2022 150 $25 $18 5% 3 12/31/2023 100 $25 $16 7% Required: Part 1) Anna and Elsa Inc. allocates the compensation cost for each of the groups (tranches) separately. Determine the total compensation expense for each tranche and the compensation expense that should be recognized in 2020, 2021, 2022, and 2023. Must show your work to receive credit.

Answer 1

Anna and Elsa Inc.

The total compensation expense for each tranche and date of expense recognition:

Tranche / Date Recognized

Expense

0 12/31/2020 $0

1 12/31/2021 $4,850

2 12/31/2022 $2,565

3 12/31/2023 $1,488

Step-by-step explanation:

Number of stock options granted = 500

Grant date = 1/1/2020

Tranche Vesting Date Number Exercise Fair Value Estimated

of Options Price Forfeiture

1 12/31/2021 250 $25 $20 3%

2 12/31/2022 150 $25 $18 5%

3 12/31/2023 100 $25 $16 7%

Compensation expense

Tranche / Date Number /Calculations = Recognized Expense

0 12/31/2020 0 $0

1 12/31/2021 250 * $20 * (1 – 0.03) = $4,850

2 12/31/2022 150 * $18 * (1 – 0.05) = $2,565

3 12/31/2023 100 * $16 * (1 – 0.07) = $1,488

500 $8,903