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Gigabyte On January 1 , 2010 , Gigabyte Inc . granted 10 , 000 " at - the - money " employee stock options ( i., the exercise price was...

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As a result of the modification what would be the compensation expense for 2011 and 2012? With information from question 3

Gigabyte Case.jpg

Gigabyte
On January 1 , 2010 , Gigabyte Inc . granted 10 , 000 " at - the - money " employee stock options ( i.e ., the
exercise price was equal to the stock price on the grant date ) . To align the compensation of the
employees with the financial performance of the company , the award will vest only if cumulative*
revenue over the following three - year reporting period is greater than $100 million and the
employees are still employed by Gigabyte . As of the date of the grant , management believes it is
probable that the company will achieve cumulative revenue in excess of $100 million over the
following three - year period .
Each award has a grant- date fair value of $15 . Gigabyte's valuation professionals have indicated that
$12 .
if the revenue target was factored into the fair value assessment , the grant- date fair value would be
Gigabyte adopted ASC 718 , Compensation - Stock Compensation
Revenue in each of the next three years was as follows :"
2010: $30 million
2011 : $20 million
2012 : $50 million
Required :"
. Should Gigabyte use the $ 12 grant- date fair value or the $15 grant- date fair value to measure
it's compensation cost ? Citation from ASC is required to support your conclusion .
2 .
Over how many years should Gigabyte recognize compensation cost associated with the
stock options , and how much , if any , should be recognized in each of those years ? The
effects of forfeitures and income taxes should be ignored . Citation from ASC is required to
support your conclusion .
3 . In the end of Year 2 , due to poor earnings , the stock price of Gigabyte has fallen
significantly . Management determined that the performance condition of cumulative revenue
in excess of $100 million over the three - year period was improbable of achievement .
Management decided to modify the terms of the options by decreasing the exercise price on
the stock options to $10 and lower the vesting performance condition of cumulative revenue
in excess of $100 million to $80 million over the three - year period . These downward
adjustments were made in order to ensure that the options continue to provide intended
motivational benefit to employees . Immediately prior to the modification of the terms , the
fair value was $ 1 per option . After considering the impact of the modification , the fair value
was $7 per option . As a result of the modification , what would be the compensation expert
for 201 1 and 2012 ? Citation from ASC is required to support your conclusion .

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