Accounting for a Performance Based Stock Option Plan
Rhiener Corporation initiated a performance based employee stock option plan on January 1, 2007. The performance base for the plan is net sales in the year 2009. The plan provides for stock options to be awarded to the employees as a group on the following basis:
|
Level |
Net Sales Range |
Options Granted |
|
1 |
<$250,000 |
10,000 |
|
2 |
$250,000–$499,999 |
20,000 |
|
3 |
$500,000–$1,000,000 |
30,000 |
|
4 |
>$1,000,000 |
40,000 |
The options become exercisable on January 1, 2010. The option exercise price is $20 per share. On January 1, 2007, each option had a fair value of $9. The market prices of Rhiener stock on selected dates in 2007–2009 were as follows:
|
January 1, 2007 |
$25 |
|
December 31, 2007 |
30 |
|
December 31, 2008 |
35 |
|
December 31, 2009 |
32 |
Year 2009 sales estimates as of selected dates were as follows:
|
January 1, 2007 |
$400,000 |
|
December 31, 2007 |
450,000 |
|
December 31, 2008 |
550,000 |
Actual sales for 2009 were $700,000. Calculate the compensation expense Rhiener should report for the years 2007,2008, and 2009 related to this performance based stock option plan.