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Breaking News: Murray Inc

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by

Michelle Nolasco

on 17 October 2014

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Transcript of Breaking News: Murray Inc

Breaking News: Murray Inc
Stock-Based Compensation
Summary:
Issue 2: Murray Compensation Inc. (Murray) should recognize $200,000 of compensation expense for the first 2 years of the service period (2010 and 2011) and $166,667,000 for the last 3 years (2012, 2013, and 2014).
Facts
Subsequent Events
Issues
Issue 1: What amount of compensation cost should Murray recognize in each year of the service period, for the awards granted on January 1, 2010? What amount of compensation
Relevant Guidance
FAS 123(R) 5 states that an entity should recognize services received in a share based payment transaction when those services are received.

10 states that an entity shall account for compensation cost from share-based payment transactions with employees in accordance with the fair-value-based method. Under the fair-value-based method, the cost of services received from employees in exchange for awards of share-based compensation shall be measured based on the grant-date fair value of the equity instruments issued.

A10-A17 discuss the acceptable methods of calculating fair value at the grant date. The grant-date fair value of the Murray options is $6. Following the guidance in Illustration 4(a), Share Options with Cliff Vesting, of FAS 123(R), compensation expense for the years ended December 31, 2006 & 2007 is $200,000 per year (calculation attached hereto).


Issue 1: Murray should recognize $200,000 of compensation expense per year for every year of the service period (3 yr. service period). In 2013 and 2014, Murray should recognize $300,000 of the compensation expense ($150,00 each yr.).

Murray is a SEC registrant that provides payroll processing and and benefit administration to other companies. Murray granted stock option awards to its employees to encourage retention.
On January 1, 2010 Murray granted 100,000 share options that cliff vest after 3 years of service.
Using the _______ pricing model, the fair values of the awards on the grant date was $6.
Two years later, on January 1, 2012, Murray Inc. wanted to provide an additional incentive to retain key employees.

Using the ____pricing model, the fair values of the award changed from $4 before modification to $1 after modification
No other terms of the stock option were effected
There were no forfeitures
Additional Guidance
FAS 123(R) B182 states that in accounting for a modification of the terms of an award of employee share-based compensation, such transactions generally are transfers of value from the entity to its employees that give rise to additional compensation cost. Pursuant to

B184 the effects of a term modification are measured by comparing the fair values of the modified and original awards at the date of the modification.
Cliff Vesting Strategies



Presented by:

Destiny Anderson, Britney DeSouza, Michelle Nolasco, Osita Nwadozie & Hina Thalho
What is the total amount of incremental costs?
*The $300,000 total compensation expense is divided by two years.*
Adjusting Entries
dr.
cr.
Issue 2: Murray Compensation Inc. (Murray) should recognize $200,000 of compensation expense for the first 2 years of the service period (2010 and 2011) and $166,667,000 for the last 3 years (2012, 2013, and 2014).
Issues
How did we calculate compensation cost?
AdjustingEntries
dr.
cr.
Full transcript