Check my work Pastner Brands is a calendaryear firm with ope

Check my work Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2018, the company issued 440,000 executive stock options permitting executives to buy 440,000 shares of Pastner stock for $36 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2018 (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, 2018, as follos: Vesting Date Anount Fair Value Vesting per Dec. 31, 2018 Dec.31,2019 Dec. 31, 2020 Dec. 31, 2021 25% 251 25% 25 3.70 4.20 $4.50 5.20 Required 1. Determine the compensation expense related to the options to be recorded each year 2018-2021, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately. 2. Determine the compensation expense related to the options to be recorded each year 2018-2021, assuming Pastner uses thee straight-line method to allocate the total compensation cost

Solution

1) Determine the compensation expense related to the options to be recorded each year 2018-21 Vesting Date Number Vesting = 440,000/Amount Vesting Fair Value Per Option Compensation cost Dec. 31, 2018 1,760,000 $3.70 $6,512,000.00 Dec. 31, 2019 1,760,000 $4.20 $7,392,000.00 Dec. 31, 2020 1,760,000 $4.50 $7,920,000.00 Dec. 31, 2021 1,760,000 $5.20 $9,152,000.00 Total $30,976,000.00 Shares Vesting At: Compensation Expense Recorded in: 2018 2019 2020 2021 Total Dec. 31, 2018 $6,512,000.00 Dec. 31, 2019 $3,696,000.00 $3,696,000.00 Dec. 31, 2020 $2,640,000.00 $2,640,000.00 $2,640,000.00 Dec. 31, 2021 $2,288,000.00 $2,288,000.00 $2,288,000.00 $2,288,000.00 Total $15,136,000.00 $8,624,000.00 $4,928,000.00 $2,288,000.00 $30,976,000.00 The compensation cost is allocated on a straight-line basis over the appropriate vesting (service) period b) 2018 2019 2020 2021 Total Compensation Expense Recorded in: = $30,976,000/4 $7,744,000.00 $7,744,000.00 $7,744,000.00 $7,744,000.00 $30,976,000.00