Question

On December 31, 2012, Kessler Company granted some of its executives options to purchase 75,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2013, and represent compensation for executives' services over a three-year period beginning January 1, 2013. The Black-Scholes option pricing model determines total compensation expense to be $450,000. At December 31, 2013, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2013 as a result of this transaction under the fair value method?

Answer 1

The impact on Kessler's net income for the year ending December 31, 2013, as a result of the options granting transaction under the fair value method is $0.

Step-by-step explanation:

To determine the impact on Kessler's net income for the year ending December 31, 2013, we need to calculate the compensation expense related to the granted options. The Black-Scholes option pricing model determined the total compensation expense to be $450,000. Since none of the executives exercised their options by December 31, 2013, there would be no impact on net income for that year. The compensation expense would be recorded over the three-year period beginning January 1, 2013, as the options become exercisable.