On January 1, 2018, Black Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Black initially estimates that it is probable the goal will be achieved. In 2019, after one year, Black estimates that it is not probable that divisional revenue will increase by 6% in three years. Ignoring taxes, what is the effect on earnings in 2019? $200,000 decrease $200,000 increase O $400,000 increase O No effect

On January 1, 2018, Black Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Black initially estimates that it is probable the goal will be achieved. In 2019, after one year, Black estimates that it is not probable that divisional revenue will increase by 6% in three years. Ignoring taxes, what is the effect on earnings in 2019? $200,000 decrease $200,000 increase O $400,000 increase O No effect

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On October 1, 2018, Farmer Fabrication issued stock options for 100,000 shares to a division manager. Theoptions have an estimated fair value of $6 each. To provide additional incentive for managerial achievement,the options are not exercisable unless Farmer Fabrication’s stock price increases by 5% in three years. Farmerinitially estimates that it is not probable the goal will be achieved. How much compensation will be recorded ineach of the next three years?
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