CPA Study Group
Seems like at the end of year one DEC31 would have accounted to a year of service if they granted the Stock Option on the 1st of JAN, this would mean 12,000/3 for 3 years left not 4.
Equally, if that is not the case, than why would you on DEC 31 years 2 (one year later) divided the 20,000 option by 2years left. if you just used 4 years left the year before.
Ether way, one seems wrong.
I love to hear what I am missing or was this just an error.
The expense would be how much has been earned to date. At the end of Y1, service completed is 1/4, so expense is 1/4 of total expected outflow ($12,000 *1/4 = $3000). At the end of Y2, service completed is 1/2 (2 of the 4 years). The total expected outflow is now $20,000. So 1/2 of the total expected outflow has been earned ($20,000 * 1/2 = $10,000). Of the $10,000, $3000 was already recognized as expense in Y1. So for Y2 $7000 more is recognized as expense to reach the $10,000. If the valuation for Y3 & Y4 didn't change, expense recognized in each of those years would be $5000 to get to the total $20k expected outflow of cash.