**Stock Options and Compensation Accounting**On January 1, 2020, Hufflepuff Industries, Inc. issued stock options for 100,000 shares to a regional manager. Each option has an estimated fair value of $6. These options serve as an additional incentive for the manager's achievement and are not exercisable unless the region's revenue increases by 8% over three years.Hufflepuff initially estimates that it is probable this goal will be achieved. Therefore, the company will record compensation costs over the vesting period of 2020, 2021, and 2022.To determine the compensation recorded each year, the total estimated fair value of the options is calculated and then divided over the vesting period. The total compensation cost is:\[ 100,000 \, \text{shares} \times \$6 = \$600,000 \]Since the vesting period is three years (2020, 2021, and 2022), the annual compensation expense recorded each year is:\[ \frac{\$600,000}{3} = \$200,000 \]Therefore, Hufflepuff Industries will record $200,000 of compensation expense in each of the years 2020, 2021, and 2022.

A contract between the two person which provides the right to the holder to buy or sell a specified quantity of underlying stock on or before the expiration of the specified date is referred to as a stock option. The underlying stocks are buy or sell by the holder at a fixed or predetermined price. Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company. US employees typically acquire shares through a share option plan. In the UK, Employee Share Purchase Plans are common, wherein deductions are made from an employee's salary to purchase shares over time. Compensation will be recorded in 2020, 2021, and 2022, The vesting period is $200,000 each year.As Hufflepuff initially estimates that it is probable that the goal will be achieved and the exercise option issues stock options for 100,000 shares with a fair value of $6 each. The total option exercise value is $600,000 (100000 x 6) which is to be the expense in 3 years.DateParticularsAmount in $Year-EndEmployee Compensation Expense Account200,000 To Share-Based Payment Reserve A/c200,000As Hufflepuff initially estimates that it is probable that the goal will be achieved and the exercise option issues stock options for 100,000 shares with a fair value of $6 each. The total option exercise value is $600,000 (100000 x 6) which is to be the expense in 3 years.Compensation will be recorded in 2020, 2021, and 2022, The vesting period is $200,000 each year.

Answered: On Jan. 1, 2020,

Business

Accounting

On Jan. 1, 2020,

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

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**Stock Options and Compensation Accounting**

On January 1, 2020, Hufflepuff Industries, Inc. issued stock options for 100,000 shares to a regional manager. Each option has an estimated fair value of $6. These options serve as an additional incentive for the manager's achievement and are not exercisable unless the region's revenue increases by 8% over three years.

Hufflepuff initially estimates that it is probable this goal will be achieved. Therefore, the company will record compensation costs over the vesting period of 2020, 2021, and 2022.

To determine the compensation recorded each year, the total estimated fair value of the options is calculated and then divided over the vesting period. The total compensation cost is:

\[ 100,000 \, \text{shares} \times \$6 = \$600,000 \]

Since the vesting period is three years (2020, 2021, and 2022), the annual compensation expense recorded each year is:

\[ \frac{\$600,000}{3} = \$200,000 \]

Therefore, Hufflepuff Industries will record $200,000 of compensation expense in each of the years 2020, 2021, and 2022.

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