Question

On January​ 1, Year​ 1, Fields Corporation granted 200 comma 000 stock options to certain executives. The options are exercisable no sooner than December​ 31, Year 3 and expire on January​ 1, Year 7. The vesting period is 3 years. Each option can be exercised to acquire one share of​ $10 par common stock for​ $15. An appropriate optionminuspricing model estimates the fair value of each option to be $ 12 on the date of grant. What amount should Fields recognize as compensation expense for Year​ 1?

Answer 1

$800,000

Step-by-step explanation:

The computation of the compensation expense for the year 1 is shown below:

= (Number of granted options × fair value of each option) ÷ (number of vesting period given)

where,

Number of granted options is 200,000

Fair value of each option is $12

And, the number of vesting period given is 3 years

So, the compensation expense for the year 1 is

= (200,000 stock options × $12) ÷ (3 years)

= $800,000