Question

On December 31, 2020, Oriole Company granted some of its executives options to purchase 153000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $2940000. The options become exercisable on January 1, 2021, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2021. What is the impact on Oriole's total stockholders' equity for the year ended December 31, 2020, as a result of this transaction under the fair value method?

Answer 1

$2,940,000/3 = $980,000

Step-by-step explanation:

First, the question is to calculate the impct of the transactions on Oriole's total stockholders' equity for the year ended December 31st 2020.

Since the fair value method is mentioned, we answer as follows

What is the fair value of the Option = $2,940,000

It is important to note that under this fair value method, over the life of an option, the total compensation for that option is to be recognized as an expense.

Based on this criteria, the amount recognized for the December 31, 2020

= Fair value of option /3

= $2,940,000/3 = $980,000