Sooner or Later

413 Words2 Pages
Sooner or later, Inc Issues: 1. Should Sooner or Later use the $6 grant-date fair value or the $9 grant-date fair value to measure its compensation cost? 2. Over how many years should Sooner or Later recognize compensation cost associated with the stock options, and how much, if any, should be recognized in each of those years? The effects of forfeitures and income taxes should be ignored. Analysis: 1. I think Sooner or Later should use $9 grant-date fair value to measure its compensation cost. FASB requires companies to recognize compensation cost using the fair-value method, and also according to 718-10-30-2 “A share-based payment transaction with employees shall be measured based on the fair value (or in certain situations specified in this Topic, a calculated value or intrinsic value) of the equity instruments issued.” Therefore, Sooner or Later should use the fair value to measure its compensation expenses. But the question is which fair value should Sooner or Later use to measure the compensation. Then according to ASC 718-10-30-27 “Performance or service conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which employees have not yet earned the right.” So the revenue target should not be considered in this fair value assessment. Therefore Sooner or Later should not use the $6 fair value to estimate its compensation cost. 2. Then I have to decide the compensation cost. This compensation issued stock to their employees with a restricted condition, so this compensation was going to be classified as equity and also it was going to be recognized over the service period which Sooner or Later required that the accumulated revenue should be more than 10 millions and the employees had to work for the company
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