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valentina_108 [34]
3 years ago
7

On December 31, 2017, Gonzalez Company granted some of its executives options to purchase 180,000 shares of the company's $10 pa

r common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,350,000. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. At December 31, 2018 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method?
a. $ 450,000 increase.
b. $1,350,000 decrease.
c. $ 450,000 decrease.
d. $0.
Business
1 answer:
Vesnalui [34]3 years ago
6 0

Answer:

Option C $450,000 decrease

Explanation:

The reason is that the cost to buy the shares in the market is lower than $50 per share so buying the shares at $50 per share is not benefiting the directors at all. This means that the liability which was calculated using the black scholes model was standing at $1350,000 for 3 years and $450,000 for a single year will not be waived off because the directors didn't exercised the option and are taking money benefits which means under fair value method the net income will decrease by $450,000 because this is the amount paid to directors.

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Explanation:

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Income(loss) would be a ($33,600) if the product is kept.

If the product is discontinued, it is given that $44,800 in fixed costs will still continue.

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The difference between these 2 options is therefore,

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This means that if Product A is stopped, the net operating income will decrease by a further $11,200 because there is no revenue to cover the fixed assets in part. The last option is correct.

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Answer:

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<u>Solution and Explanation:</u>

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Answer:

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