On January 1, 2013, M Company granted 94,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2015, and expire on January 1, 2019. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. What amount should M recognize as compensation expense for 2013? A) $188,000B) $156,667C) $62,666D) $31,333

Question

Business

Isabel Santana

1 February, 21:08

On January 1, 2013, M Company granted 94,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2015, and expire on January 1, 2019. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. What amount should M recognize as compensation expense for 2013? A) $188,000B) $156,667C) $62,666D) $31,333

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Answers (1)

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Violet Noble · Answer 1

Option (B) $156,667

Explanation:

Data provided in the question:

Number of stock options granted = 94,000

Fair value of the option-pricing = $5

Vesting period, from December 31, 2015 to January 1, 2019 = 3 years

Now,

Compensation expense to be recognized

= [ Number of stock options granted * fair value of option ] : [ vesting period ]

= [ 94,000 * 5 ] : 3

= $156,667

Hence,

Option (B) $156,667