Question

On January 1, 2018, M Company granted 98,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2020, and expire on January 1, 2024. Each option can be exercised to acquire one share of $1 par common stock for $8. An option-pricing model estimates the fair value of the options to be $4 on the date of grant. What amount should M recognize as compensation expense for 2018? (

Answer 1

$130,667

Step-by-step explanation:

The computation of the compensation expense recognized is shown below:

= (Number of stock options × estimated fair value of the options) ÷ number of years vested

= (98,000 stock options × $4) ÷ 3 years

= $392,000 ÷ 3 years

= $130,667

The number of years vested is calculated from On January 1, 2018 to December 31, 2020