Problem
On January 1, 2022, Int Line Inc. issued 500,000 executive stock options permitting executives to buy 4 million shares of stock for $25 per share. 10% of the options vest in 2022, 10% in the 2023, 15% in 2024, 15% in 2025, 20% in 2026 and 30% in 2027. The value of the options that vest over the 6- year period is estimated at January 1, 2022, by separating the total award into 6 groups (or tranches) according to the year in which they vest (because the expected life for each group differs). The fair value of the options as of January 1, 2022, is estimated as follows:
|
Vesting Date
|
Number of Options Vesting
|
FV Per Option
|
|
2022
|
50,000
|
$ 3.50
|
|
2023
|
50,000
|
$ 5.00
|
|
2024
|
75,000
|
$ 6.00
|
|
2025
|
75,000
|
$ 7.50
|
|
2026
|
100,000
|
$ 9.00
|
|
2027
|
150,000
|
$ 10.00
|
Task
I. What is the compensation expense that Int Line Inc. would record in 2023 associated with these options if Big Lion does not use the straight-line method?
II. What is the compensation expense that Int Line Inc. would record in 2023 associated with these options if Big Lion does use the straight-line method?