Essay on Grant-Date Fair Value

705 Words Apr 7th, 2012 3 Pages
MEMORANDUM

Statement of Facts
On January 1, 2006, Sooner or Later Inc. granted 1,000 “at-the-money: employee stock options which will vest only if cumulative revenue over the following three-year reporting period is greater than $10 million and the employees are still employed by Sooner or Later Inc. They adopted ASC 718, Compensation-Stock Compensation in 2005. 1. The grant-date fair value of each award is $9. With the revenue target factored into the fair value assessment the grant-date fair value is $6. 2. Management believes it is probable the company will achieve cumulative revenue in excess of $10 million. 3. The requisites to vest were fulfilled. Revenue of $2 million, $5 million and $4 million was collected in
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Market conditions that affect an award’s fair value (including exercisability) are included in the estimate of grant-date fair value (see paragraph 718-10-30-15). Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award’s fair value are included in the estimate of grant-date fair value (see that same paragraph).” c. Due to the inclusion of the pertinent factors phrase and the fact that market conditions affect an award’s fair value, the $6 grant-date fair value, with the revenue target factored in, is a more precise value.

2. Sooner or Later Inc. should recognize compensation cost over the three year reporting period. d. ASC 710-10-25-9 addresses the recognition of deferred compensation arrangements. It states: “To the extent the terms of a contract attribute all or a portion of the expected future benefits to a period of service greater than one year, the cost of those benefits shall be accrued over that period of the employee’s service in a systematic and rational manner.” The compensation costs associated with the stock options should be allocated over the three-year reporting period. e. ASC 718-10-25-2 states that, “an entity shall recognize the services received in a share-based payment transaction with an employee as services are received.” As the

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