Reference no: EM132494591

Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2021, the company issued 320,000 executive stock options permitting executives to buy 320,000 shares of Pastner stock for $28 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2021 (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, 2021, as follows:

Vesting Date           Amount Vesting        Fair Value per Option

Dec. 31, 2021             25%                          $5.00

Dec. 31, 2022             25%                           $5.60

Dec. 31, 2023              25%                          $6.00

Dec. 31, 2024               25%                           $6.40

Required:

Question 1. Determine the compensation expense related to the options to be recorded each year 2021-2024, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.

Question 2. Determine the compensation expense related to the options to be recorded each year 2021-2024, assuming Pastner uses the straight-line method to allocate the total compensation cost.