Re: Murray Compensation, Inc.FactsMurray Compensation, Inc. (Murray), an SEC registrar that provides payroll processing and benefits administration services to other companies , awarded 100,000 at-the-money employee stock awards on January 1, 2006. Awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting) and have an exercise price of $21. After the bonuses were granted, the stock price dropped significantly. On January 1, 2008, Murray reduced the strike price of his stock options to $12. This downward adjustment to the exercise price was made to ensure that the options continue to provide the intended motivational benefit to employees. However, in addition to reducing the exercise price, Murray also changed the vesting terms, such that employees must provide an additional two years of service (awards will not vest starting January 1, 2011). Immediately prior to the strike price reduction of the premiums, the fair value was $1 per premium. After considering the impact of the January 1, 2008 revaluation, the fair value was $4 per award. Issue: What amount of compensation expense should Murray recognize in the years ended December 31, 2008, 2009, and 2010? Response 2008 Compensation Expense $166,6672009 Compensation Expense $166,6672010 Compensation Expense $166,667DiscussionFAS 123 was revised during 2004. For public entities that are not small business issuers, the effective date of FAS 123(R) is June 15, 2005. FAS 123(R) 74 states that all public entities that have used the fair value method for both recognition and disclosure must adopt this Statement using an application modified perspective. According to the amendment… half of the document… would result in compensation expenses not being recognized, thus misrepresenting the costs of running the business. Accounting for change in share-based payments provides feedback value to investors. By making the change to compensation fees, investors are notified that a change has been made to the terms of share-based payments. By alerting investors to the change, you are telling investors that management believes the company will still be successful, however management wants to get employees to continue working hard to help boost the stock price. Finally, as shown in the journal entry dated 12/31/06, the compensation debt relates to further payments based on capital quotas. Provides predictive value to investors because investors will know the amount of cash inflows to expect from future exercise of equity-based payout premiums.