Reference no: EM132690622

At the beginning of the year 20X1, C Ltd grants stock options to each of its 50 employees in the sales department. The stock options will vest at the end of year 20X3, provided the employees remain in the employ of the company, and provided that sales increase by at least an average of 5% per year. If sales increase by an average of between 5% and 10% per year, each employee will receive 100 stock options. If sales increase by an average of between 10% and 15% per year, each employee will receive 150 stock options. If sales increase by an average of more than 15% per years, each employee shall receive 200 stock options. On the grant date, the company estimates that the fair value of each option is $3 per option.

• By the end of 20X1, two employees left, and the company estimates that another three employees will leave by the end of 20X3. Sales increased by 11% during 20X1, and the company estimates that the current rate of sales increase during 20X2 and 20X3.

• By the end of 20X2, another one employee left, and the company estimates that one more employee will leave in 20X3. Sales increased by 6% in 20X2. The company estimates that sales will increase by 7% during 20X3.

• None left the company in 20X3. Sales increased by 5% during 20X3.

Question 1: Prepare a schedule setting out the annual and cumulative remuneration expense for years 20X1-20X3.

Question 2: Give the journal entry to recognize the employee stock option expense in year 1.

Question 3: Briefly explain why the change in the estimated number of stock options in year 20X2 is not accounted for as an adjustment to the amount recognised in the 20X1.