Question

White company is a calendar-year firm with operations in several countries. at january 1, 2018, the company had issued 10,000 executive stock options permitting executives to buy 10,000 shares of stock for $25. the vesting schedule is 30% the first year, 30% the second year, and 40% the third year (graded-vesting). the fair value of the options is estimated as follows: vesting date amount vesting fair value per option dec. 31, 2018 30 % $ 2.80 dec. 31, 2019 30 % $ 3.00 dec. 31, 2020 40 % $ 3.75 what is the compensation expense related to the options to be recorded in 2019?

Answer 1

The compensation expense related to the options to be recorded in 2019 is $9,500.

Step-by-step explanation:

The relevant fair value at Dec. 31, 2019 = (10,000 × 30% × $3) × (1/2) = $9,000 × 0.5 = $4,500

The relevant fair value at Dec. 31, 2020 = (10,000 × 40% × $3.75) × (1/3) = $15,000 × (1/3) = $5,000

Compensation expense = $4,500 + $5,000 = $9,500

Therefore, the compensation expense related to the options to be recorded in 2019 is $9,500.