On January 1, 2018, Black Inc

question 169

Multiple Choice

On January 1, 2018, Black Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Black initially estimates that it is probable the goal will be achieved. In 2019, after one year, Black estimates that it is not probable that divisional revenue will increase by 6% in three years. Ignoring taxes, what is the effect on earnings in 2019?

• A) $200,000 decrease.
• B) $200,000 increase.
• C) $400,000 increase.
• D) No effect.

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Definitions:

Journal Entry

A record in accounting that documents a business transaction in the ledger, consisting of the debits and credits that impact various accounts.

Adjusting Entry

An accounting journal entry made at the end of an accounting period to allocate income and expenditure to the appropriate period.

Interest-Bearing Note

A debt instrument that pays interest to the holder at a specified rate over the life of the note until its maturity.

Interest-Bearing Note

A debt instrument that pays interest to the holder until the maturity date when the principal amount is repaid.