On January 1, Year 1, Sterling Corporation issued stock options for 260,000 shares to its CEO. The options have an estimated fair value of $6 each.

To provide additional incentive, the options are not exercisable unless revenue increases by 4% in three years. Sterling initially estimates that it is probable the goal will be achieved.

What is compensation expense for Year 1?

Question

Cale

Business

5 April, 01:59

On January 1, Year 1, Sterling Corporation issued stock options for 260,000 shares to its CEO. The options have an estimated fair value of $6 each.

To provide additional incentive, the options are not exercisable unless revenue increases by 4% in three years. Sterling initially estimates that it is probable the goal will be achieved.

What is compensation expense for Year 1?

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Answers (1)

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Bethany Stark · Answer 1

Answer:Nill

Explanation:

The provision of an incentive to a employee with additional conditions means the conditions must be achieved before the incentive can be giving.

In the above scenario since it's only probable that the conditions will be achieved though the expenses can be estimated, the company only needs to disclose this in it's financial report at the end of the year.