On January 1, 2013, Biggs Company Granted a Performance-Based Stock

Essay

On January 1, 2013, Biggs Company granted a performance-based stock option plan to 40 executives to buy a maximum of 3,000 shares each of its $10 par common stock at $30 a share. The fair value per option is $8. The terms of the plan, which has a three-year service and vesting period, are based on the following scale:

Biggs expects an annual employee turnover rate of 3%, and the company initially anticipates an increase in sales during the service period of 18%. By the end of 2015, the actual sales increase is 17%.
a.Compute the estimated total compensation cost.
b.Compute the annual compensation expense for each of the three years.
c.Prepare the January 1, 2016, entry when 10 executives exercise their options.