Account For Share-Based Compensation Practice Test

A for-profit entity grants equity-classified stock options to employees under ASC 718 with a grant-date fair value of $2,400,000 and a 4-year graded vesting schedule (25% each year) based solely on service. The entity uses the straight-line attribution method and estimates a 5% forfeiture rate at grant date. At the end of Year 2, actual forfeitures indicate a total expected forfeiture rate of 10% for the award. Based on the scenario, how should the entity recognize compensation expense in Year 2?

A for-profit entity granted 40,000 equity-classified stock options on January 1, 20X1 under ASC 718 with a 4-year service vesting period; the original grant-date fair value was $10 per option. On January 1, 20X3 (after 2 years of service), the entity modifies the award to reduce the exercise price, increasing the fair value to $13 per option on the modification date; the options remain equity-classified and employees are expected to complete service. Based on the scenario, how should the entity recognize compensation cost for the modification?