Question

at january 1, year 1, edwards company issued 10,000 stock options permitting employees to buy 10,000 shares of stock for $50 per share. the vesting schedule (graded-vesting) and value of the options that vest over the 3-year period is estimated at january 1, year 1, as set forth in the following table. vesting date amount vesting fair value per option dec. 31, year 1 10 % $ 2 dec. 31, year 2 30 % $ 3 dec. 31, year 3 60 % $ 4 what is the compensation cost for year 1 relating to these stock options? (do not use the straight-line method.)

Answer 1

The compensation cost for year 1 relating to these stock options is $2,000.

Step-by-step explanation:

The compensation cost for year 1 relating to these stock options can be calculated by multiplying the amount vesting in year 1 (10%) by the fair value per option ($2). Therefore, the compensation cost for year 1 would be 10% x $2 = $0.20 per option. Since there are 10,000 options, the total compensation cost for year 1 would be $0.20 x 10,000 = $2,000.