Submitted by: Submitted by emmclean
Views: 238
Words: 1689
Pages: 7
Category: Business and Industry
Date Submitted: 10/27/2014 07:56 PM
Memorandum
To: Management of Occupy Mall Street
CC: Controller
From: Delaney McLean
Date: [ 12/3/13 ]
Re: Accounting for Stock Option Compensation Cost
Occupy Mall Street (OMS), a public real estate management firm, has begun awarding stock options to its executives at the beginning of each year due to a continued increase in stock price through 2011. On January 1, 2012, OMS granted 1,000 stock options with a four-year vesting period. The company provided me with three potential scenarios and, as a result, I was able to calculate the compensation cost from the stock options in each different possible outcome. I relied on guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) to carry out my analysis on the three different scenarios.
Scenario 1:
Data Before Modification |
Grant Date | 1/1/12 |
Awards | 1,000 |
Vesting Period | 4 years |
Exercise Price (per share) | $30 |
Market Price (per share) | $30 |
Fair Value (per option) | $15 |
Table 1:
Table 1 above shows the original conditions of the stock options granted to executives on January 1, 2012. According to ASC 718-10-30-3, OMS should “account for the compensation cost from share-based payment transactions with employees in accordance with the fair-value based method,” which states “the cost of services received from employees in exchange for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issue or on the fair value of the liabilities incurred.” The grant-date fair value (FV) of the awards is $15 per share, which is the FV that I used in the compensation cost calculations below in Table 2. ASC 718-10-35-2 states “the compensation cost for an award of share-based employee compensation classified as equity shall be recognized over the requisite service period, with a corresponding credit to equity.” This paragraph also includes that “the requisite...