Pastner Brands is a calendar-year firm with operations in several countries.

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Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2013 the company issued 400,000 executive stock options permitting executives to buy 400,000 shares of Pastner stock for $34 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2013 (graded vesting). Pastner elects to separate the total award into four groups (or tranches) according to the year in which they vest and measures the compensation cost for each vesting date as a separate award. The fair value of each tranche is estimated at January 1, 2013, as follows:
 
Vesting date
Amount vesting
Fair value for option
December 31, 2013
25%
$3.50
December 31, 2014
25%
$4.00
December 31, 2015
25%
$4.50
December 31, 2016
25%
$5.00
 

Required:
1. Determine the compensation expense related to the options to be recorded each year 2013–2016, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.
 
2. Determine the compensation expense related to the options to be recorded each year 2013–2016, assuming Pastner uses the straight-line method to allocate the total compensation cost.
 
    • 8 years ago
    Pastner Brands is a calendar-year firm with operations in several countries.
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      p19-2_pastner_brands_.xls