Reference no: EM131147474
Case:-
Spend More
On January 1, 2006, Spend More (the Company) issued to certain employees 1,000,000 equity-settled stock option awards. The employees will vest in differing numbers of options depending on the cumulative amount of net income the Company earns over the four fiscal years1 following the date of grant, and their continued employment with the Company. The exercise price of the awards is $31.50, which was the Company's closing share price on the NASDAQ National Market on the date of grant. The Company accounts for the stock compensation awards based on the provisions of ASC 718, Compensation - Stock Compensation (FASB Statement No. 123 (revised 2004), Share-Based Payment (Statement 123(R))). The fair value of each award, which was determined based on the Black-Scholes option pricing model was $8 at the date of grant.
In order to align the employees' performance with the performance of the Company, the Board of Directors of the Company included the following provision in each of the awards:
Subject to Section 5.2(a) of the Spend More 2006 Stock Option Plan, the employee will vest in the awards in various percentages (refer to vesting schedule below) based on the amount of cumulative net income earned by the Company in the succeeding four-year period:
Performance Condition Percent Vested
Greater than $15 million, up to $20 million 25%
Greater than $20 million, up to $23 million 50%
Greater than $23 million, up to $27 million 75%
Greater than $27 million 100%
Based on its most current financial forecasts, the Company believes it will earn cumulative net income greater than $20 million, but not more than $23 million in the succeeding four-year period. As a result, the Company will base its estimate of compensation cost on 50 percent of the awards vesting (assuming no forfeitures).
Required:
• Issue 1: How much compensation cost would the Company have to record for the year ended December 31, 2006, in accordance with the principles of ASC 718, Compensation - Stock Compensation (Statement 123(R))?
1 The first fiscal year is the year in which the stock options have been granted.
Additional Facts:
Assume the same facts in Issue 1 except that the Spend More 2006 Stock Option Plan allowed employees to pay for the exercise of the stock options using the stock they will receive upon exercise of their awards, or by tendering options with an intrinsic value equal to the exercise price (net-share settlement).
• Issue 2: How much compensation cost would the Company have to record for the year ended December 31, 2006, in accordance with the principles of ASC 718, Compensation - Stock Compensation (Statement 123(R))?
Additional Facts:
Assume the same facts in Issue 1 except that the Spend More 2006 Stock Option Plan permits settlement of the awards in cash instead of the Company's own shares. The Company has concluded, and its auditor has agreed, that the awards are liability awards since they will be settled in cash. The fair value of each liability award at December 31, 2006, is $12.
The awards essentially would meet the definition of a cash-settled stock appreciation right (SAR). SARs are awards enabling employees to receive cash, stock, or a combination of cash and stock, in an amount equivalent to any excess of the market value of a stated number of shares of the employer's stock over a stated price (i.e., exercise price). If the SAR is payable only in cash, or payable in cash at the election of the employee, accrued compensation should be recorded as a liability. Since the value of the SAR is based on the market appreciation of the Company's stock, total compensation cost is unknown for a SAR until it is exercised.
Issue 3: How much compensation cost would the Company have to record for the year ended December 31, 2006, in accordance with the principles of ASC 718, Compensation - Stock Compensation (Statement 123(R))?
|
How ada assist organization in maintaining diverse workforce
: From your years as a diversity consultant, you are familiar with the ADA. Discuss the key aspects of ADA that you will share with all employees so they understand the importance of the topic. Include a discussion on how ADA assists organizations i..
|
|
What is the likelihood of unionism growing again
: What is the likelihood of unionism growing again? Be sure to support your stance with various historical markers, legislation, political stances, and other issues covered in our text and readings
|
|
Write essay about the movement against slavery in the north
: Write an essay about the movement against slavery in the north was directly tied to reform movements that focused on women's rights, temperance, & workers rights.
|
|
Create a training plan for this customer service program
: Describe three new training methods and explain which one of these methods you selected for this Customer Service training program and why.
|
|
How much compensation cost would the company have to record
: How much compensation cost would the Company have to record for the year ended December 31, 2006, in accordance with the principles of ASC 718, Compensation - Stock Compensation?
|
|
Why did the vast majority head for the southwest
: Identify some of the reasons Easterners were heading west in increasing numbers during the 1840s. Why did the vast majority head for the Southwest or the Pacific Coast rather than the less-distant lands of the Great Plains?
|
|
The enduring skills of change leaders
: Read "The Enduring Skills of Change Leaders Preview the documentView in a new window" by Rosabeth Moss Kanter. Kanter provided three points that guide organizations that thrive on change. Reflect on how those three points may apply to your firm and y..
|
|
Brief synopsis of which types of insurance might be accepted
: Write a 2-3 page paper which incorporates examples of primary, secondary, and tertiary care. Include in the paper an example of a patient who would receive services at the different types of institutions. Include a brief synopsis of which types o..
|
|
Because of illegal and unethical behavior of few managers
: Because of the illegal and unethical behavior of a few managers, managers in general are under suspicion for being greedy and dishonest. Discuss the fairness of such charges, and suggest what could be done to improve the opinion of manager
|