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
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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
Transcribed Image Text: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
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