Question

On January 1, 2019, Crane Company granted Sam Wine, an employee, an option to buy 1,000 shares of Crane Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5880. Wine exercised his option on October 1, 2021 and sold his 1,000 shares on December 1, 2021. Quoted market prices of Crane Co. stock in 2021 were:

July 1 $30 per share
October 1 $36 per share
December 1 $40 per share

The service period is for three years beginning January 1, 2019. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense on its books in the amount of:_______

a. $1,800.
b. $600.
c. $450.
d. $0.

Answer 1

b. $600

Step-by-step explanation:

Calculation for what Ellison should recognize

as compensationn expense on its books

Based on the information given if the total compensation expense was the amount of $1,800 in which The service period is for three years which begins from January 1, 2010 which means that the Compensation for 2010 will be calculated by Using this formula

Compensation for 2010= Total compensation / 3 years

Let plug in the formula

Compensation for 2010 = $1,800 / 3 years

Compensation for 2010 = $600

Therefore Ellison should recognize compensation expense on its books in the amount of $600