Accountants' Handbook Special Industries and Special Topics 10th Edition_14

Tham khảo tài liệu accountants’ handbook special industries and special topics 10th edition_14, tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả
Nội dung trích xuất từ tài liệu:
Accountants’ Handbook Special Industries and Special Topics 10th Edition_14 37.6 APPLICATION OF FASB STATEMENT NO. 123 37 41 • COMPARISON OF COMPENSATION COST RECOGNIZED UNDER FASB STATEMENT NO. 123 AND APB OPINION NO. 25Assume the following for stock compensation awards made by Company A, a public company: Stock price at date of grant (January 1, 2000) $40 Expected life of options 6 years Risk-free interest rate 7.0% Expected volatility in stock price 30% Expected dividend yield 1.5% Vesting schedule for options 100% at end of third year Options expected to vest (5,000 forfeited each year) 285,000 Estimated fair value of each option* $15 Stock price at December 31, 2002 $60 *Fair value calculated using an acceptable pricing model.Fixed Stock Option AwardOn January 1, 2000, Company A grants 300,000 stock options to officers and other employees with amaximum term of 10 years and an exercise price equal to the market price of the stock at date of grant. APB Opinion 25 FASB Statement No. 123Compensation cost recognized: Year 2000 $0,000,000 $1,425,000 Year 2001 0 1,425,000 Year 2002 $0,000,000 $1,425,000 Total $0,000,000 $4,275,000Performance Stock AwardOn January 1, 2000, Company A also grants 30,000 restricted shares to certain employees. Therestrictions lapse at the end of three years if certain annual earnings per share targets are met during thethree-year period. For purposes of this example, assume the earnings per share targets were met duringthe three-year period and the restrictions lapsed on December 31, 2002. APB Opinion 25 FASB Statement No. 123Compensation cost recognized $1,800,000 $1,200,000Exhibit 37.7 Comparison of compensation cost recognized under FASB Statement No. 123 and APB Opinion No. 25.feited because of failure to meet vesting requirements are excluded from determination of com-pensation cost. In certain circumstances, due to the terms of a stock option or other equity instrument, itmay not be feasible to reasonably estimate the fair value of a stock-based award at the grantdate. For example, the fair value of a stock option whose exercise price adjusts by a specifiedamount with each change in the underlying price of the stock cannot be reasonably estimatedusing an option pricing model. If the fair value cannot be estimated at the grant date, fair valueat the first date at which it is possible to reasonably estimate that value should be used as thefinal measure of compensation cost. For interim periods during which it is not possible to de-termine fair value, companies should estimate compensation cost based on the current intrinsicvalue of the award.37 42 STOCK-BASED COMPENSATION •(d) OPTION PRICING MODELS. In addressing the issue of estimating fair value of equityinstruments, the FASB noted that it was not aware of any quoted market prices that would beappropriate for employee stock options. Accordingly, FASB Statement No. 123 requires thatthe fair value of a stock option (or its equivalent) be estimated using an option-pricing model,such as the Black-Scholes or a binomial pricing model, that considers the following assump-tions or variables: • Exercise price of the option. • Expected life of the option—Considers the outcome of service-related conditions (i.e., vesting requirements and forfeitures) and performance-related conditions. Expected life is typically less than the contractual term. • Current price of the underlying stock—Stock price at date of grant. • Expected volatility of the underlying stock—An estimate of the future price fluctuation of the underlying stock ...