Question

Sharp Corp. granted an employee an option to purchase 12,000 shares of Sharp's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $280,000. The option became exercisable on December 31, 2015, after the employee completed two years of service. The market prices of Sharp's stock were as follows:

January 1, 2014 $30
December 31, 2015 50

For 2015, should recognize compensation expense under the fair value method of

a. $180,000.
b. $60,000.
c. $140,000.
d. $0.

Answer 1

c. $140,000.

Step-by-step explanation:

The computation of the compensation expense under the fair value method is shown below:

= Total compensation expense ÷ number of years

= $280,000 ÷ 2 years

= $140,000

Since the total compensation expense is given for two years but we have to find out for one year so we divided it by the number of years so that the fair value could come