Question

In order to retain certain key executives, Crane Company granted them incentive stock options on December 31, 2020. 143000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2021 $48 per share December 31, 2022 53 per share The options were granted as compensation for executives’ services to be rendered over a two-year period beginning January 1, 2021. The Black-Scholes option pricing model determines total compensation expense to be $1504000. What amount of compensation expense should Crane recognize as a result of this plan for the year ended December 31, 2021 under the fair value method? $ 752000. $1504000. $2629000. $1654000.

Answer 1

$752,000

Step-by-step explanation:

Black-Scholes total compensation expense = $1,504,000

Since the options were granted as compensation for executives’ services to be rendered over a two-year period, we therefore have:

Compensation expenses for December 31, 2021 = $1,504,000 / 2 = $752,000