Question 1

On January 1, Year 1, Tech Co. grants 10,000 stock options to employees. The options vest after 3 years of service. The fair value of each option is $15 on the grant date. On December 31, Year 1, the fair value of the option is $18. Tech Co. estimates 10% forfeitures. What amount of compensation expense should Tech Co. recognize for Year 1?

Accepted Answer

1. Determine Total Compensation Cost: (Options * Grant Date FV * (1-Forfeiture)). 2. Allocate over Vesting Period (divide by years). Note: Ignore subsequent FV changes for Equity-classified awards.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using year-end FV (remeasurement is only for Liability awards); forgetting to prorate over vesting period.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 3

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