On January 1, 2014, to provide additional retention incentive to its
employees for the third and fourth years of service of the 2012 annual
grant, OMS will change the terms of the award by modifying the
exercise price to $20 per share. Using the Black-Scholes pricing model,
management determined that the fair-value-based measure of the
awards was $12 after modification and $9 before the terms of the
award were modified. The modification did not affect any of the other
terms or conditions of the awards.
Note that no forfeitures are assumed for the purposes of this case.
Required:
1.
How much compensation cost should OMS recognize in each
year of the award’s service period?
2.
How would the accounting for these awards change if the
modification to the terms (i.e., exercise price) of the award was made
on January 1, 2017, after the awards have become fully vested?
Additional Case Facts:
Assume the same facts as described above. However, the terms of the
award also include a performance condition in which the awards will
vest if cumulative net income over the four-year vesting period is