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Brief Exercise 19-10 Performance-based options [LO19-2] On October 1, 2018, Farmer Fabrication issued stock options for 280,000...

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Accounting

Brief Exercise 19-10 Performance-based options [LO19-2]

On October 1, 2018, Farmer Fabrication issued stock options for280,000 shares to a division manager. The options have an estimatedfair value of $5 each. To provide additional incentive formanagerial achievement, the options are not exercisable unlessdivisional revenue increases by 2% in four years. Suppose thatFarmer initially estimates that it is not probable thegoal will be achieved, but then after one year, Farmer estimatesthat it is probable that divisional revenue will increase by 2% bythe end of 2020.

Required:

1. What is the revised estimate of the totalcompensation?
2. What action will be taken to account for theoptions in 2019?
3. Prepare the journal entries to recordcompensation expense in 2019 and 2020.

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