Question

Halo Company is a calendar-year U.S. firm with operations in several countries. At January 1, 2021, the company had issued 41,300 executive stock options permitting executives to buy 41,300 shares of stock for $26. The vesting schedule is 20% the first year, 30% the second year, and 50% 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, 2021 20 % $ 8
Dec. 31, 2022 30 % $ 9
Dec. 31, 2023 50 % $ 13


What is the compensation expense related to the options to be recorded in 2022?
rev: 03_30_2020_QC_CS-206085
Multiple Choice
• $55,755.
• $111,510.
• $145,238.
• $143,173.

Answer 1

Answer:

$111,510

Explanation:

The Halo Company issued 41,300 executive stock options at price of $26 which totals $1,073,800. The vesting schedule is followed to calculate compensation expense. A stock option gives right to the stock option holder to buy or sell shares at specific price at specific time.  The compensation expense is recognized when the vesting takes place. The stock option compensation expense is debited to income statement of the company.