## Tuesday, 29 April 2014

### Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2013, the company issued 400,000 executive stock options permitting executives to buy 400,000 shares of Pastner stock for \$34 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2013 (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, 2013, as follows:

Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2013, the company issued 400,000 executive stock options permitting executives to buy 400,000 shares of Pastner stock for \$34 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2013 (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, 2013, as follows:

 Vesting Date Amount Vesting Fair Value per Option Dec. 31, 2013 25 % \$ 3.50 Dec. 31, 2014 25 % \$ 4.00 Dec. 31, 2015 25 % \$ 4.50 Dec. 31, 2016 25 % \$ 5.00

 Required: 1. Determine the compensation expense related to the options to be recorded each year 2013–2016, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.

 Compensation Expense Recorded in: Shares Vesting at: 2013 2014 2015 2016 Dec. 31, 2013 \$ Dec. 31, 2014 \$ Dec. 31, 2015 \$ Dec. 31, 2016 \$ \$ \$ \$ \$ Total \$

 2 Determine the compensation expense related to the options to be recorded each year 2013–2016, assuming Pastner uses the straight-line method to allocate the total compensation cost.

 2013 2014 2015 2016 Total Compensation expense \$ \$ \$ \$ \$

Explanation: