On January 1, 2020, Biggs Company granted a performance-based
stock option plan to 40 executives to buy a maximum of 3,000 shares
each of its $10 par common stock at $30 a share. The fair value per
option is $8. The terms of the plan, which has a three-year service
and vesting period, are based on the following scale:
Sales Increase at Least
No. of Shares
10%
1,000
15%
2,000
20%
3,000
Biggs expects an annual employee turnover rate of 3%, and the
company initially anticipates an increase in sales during the
service period of 18%. By the end of 2023, the actual sales
increase is 17%.
Required:
a.
Compute the estimated total compensation cost.
b.
Compute the annual compensation expense for each of the three
years.
c.
Prepare the January 1, 2020, entry when 10 executives exercise
their options.