At the beginning of year 1, an entity grants 200 shares each to 500 employees. The grant is conditional upon the employees remaining in the entity's employ until the performance condition described below is satisfied. Performance Condition The shares will vest at the end of: Year1 - if the entity's earnings increase by 15%. Year2 - if the entity's earnings increase by more than an average of 11% per year over the two-year period. Year3 - if the entity's earnings increase by more than an average of 8% per year over the three-year period. The shares have a fair value of P15 at the beginning of year 1, which equals the share price at grant date. The entity does not expect to pay dividends over the three-year period. The following events occurred: Year 1 30 employees have left during year 1 and the entity expects, on the basis of a weighted average probability, that a further 40 will leave during year 2. The entity's earnings have increased by 14% by the end of year 1 and the entity expects that the earnings will continue to increase at a similar rate in year 2. Therefore, the entity expects that the shares will vest at the end of year 2. W Edit with WPS Office Year 2 35 employees have resigned by the end of year 2 and the entity expects that a further 30 will leave during year 3. Earnings have increased by only 7% during year 2. Hence, the shares do not vest at the end of year 2 as expected by the end of year 1. The entity expects that by the end of year 3, its earnings will increase by at least 5%, thereby achieving the average of 8% per year.
At the beginning of year 1, an entity grants 200 shares each to 500 employees. The grant is conditional upon the employees remaining in the entity's employ until the performance condition described below is satisfied. Performance Condition The shares will vest at the end of: Year1 - if the entity's earnings increase by 15%. Year2 - if the entity's earnings increase by more than an average of 11% per year over the two-year period. Year3 - if the entity's earnings increase by more than an average of 8% per year over the three-year period. The shares have a fair value of P15 at the beginning of year 1, which equals the share price at grant date. The entity does not expect to pay dividends over the three-year period. The following events occurred: Year 1 30 employees have left during year 1 and the entity expects, on the basis of a weighted average probability, that a further 40 will leave during year 2. The entity's earnings have increased by 14% by the end of year 1 and the entity expects that the earnings will continue to increase at a similar rate in year 2. Therefore, the entity expects that the shares will vest at the end of year 2. W Edit with WPS Office Year 2 35 employees have resigned by the end of year 2 and the entity expects that a further 30 will leave during year 3. Earnings have increased by only 7% during year 2. Hence, the shares do not vest at the end of year 2 as expected by the end of year 1. The entity expects that by the end of year 3, its earnings will increase by at least 5%, thereby achieving the average of 8% per year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:At the beginning of year 1, an entity grants 200 shares each to 500 employees. The grant is conditional upon
the employees remaining in the entity's employ until the performance condition described below is satisfied.
Performance Condition
The shares will vest at the end of:
Year1 - if the entity's earnings increase by 15%.
Year2 - if the entity's earnings increase by more than an average of 11% per year over the two-year
period.
Year3 - if the entity's earnings increase by more than an average of 8% per year over the three-year
period.
The shares have a fair value of P15 at the beginning of year 1, which equals the share price at grant date. The
entity does not expect to pay dividends over the three-year period.
The following events occurred:
Year 1
30 employees have left during year 1 and the entity expects, on the basis of a weighted average
probability, that a further 40 will leave during year 2.
The entity's earnings have increased by 14% by the end of year 1 and the entity expects that the
earnings will continue to increase at a similar rate in year 2. Therefore, the entity expects that the
shares will vest at the end of year 2.
W Edit with WPS Office
Year 2
35 employees have resigned by the end of year 2 and the entity expects that a further 30 will leave
during
year 3.
Earnings have increased by only 7% during year 2. Hence, the shares do not vest at the end of year 2
as expected by the end of year 1. The entity expects that by the end of year 3, its earnings will
increase by at least 5%, thereby achieving the average of 8% per year.
Year 3
28 employees have resigned by the end of year 3.
The entity's earnings have increased by 6% during year 3. This results in an average increase of 9%
per year over the three-year vesting period.
Based on the preceding information, determine the following:
5. Cumulative compensation expense at the end of year 1
а. Р407,000
b. P645,000
c. P430,000
d. P82,500
6. Cumulative compensation expense at the end of
a. P1,290,000
b. Р330,000
year
c. P810,000
d. P822,000
7. Cumulative compensation expense at the end of year 3
a. P1,221,000
b. P1,290,000
c. P1,215,000
d. P1,500,000
8. The year in which the share options vested to the entity's employees
a. Year 1
b. Year 2
c. Year 3
d. The option did not vest
9. Share options outstanding at the end of year 2
a. P822,000
b. P810,000
с. Р645,000
d. P430,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education