Question

FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years.

The common shares have a market price of $8 per share on the grant date.

Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?A. $0.B. $15 million.C. $40 million.D. $120 million.

Answer 1

Option (C) $40 million

Step-by-step explanation:

Data provided in the question:

Number of shares granted to executives = 15 million

Value of shares = $1 par common shares

Market price per share = $8 per share

Time period = 3 years

Now,

The effect on earnings in the year after the shares are granted to executive

= [ Market value of the shares granted ] ÷ [ Time period ]

= [ $8 × 15 million ] ÷ 3

= $40 million

Hence,

Option (C) $40 million