Question

On January 1, 2018, Olympic Insurance Company granted 30,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2020, and expire on January 1, 2021. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. The market price of Olympic’s stock was as follows:_________

Answer 1

Answer:

The additional information for this question is:

January 1, 2016 $14

December 31, 2016 15

What amount should Olympic recognize as compensation expense for 2016?

The correct answer is $50.000

Explanation:

To find this figure, we take as a reference the price of the fair value of the options that is $ 5 on the grant date, multiplied by the options on the shares totaling $ 30,000. Then, it must be divided between the award period that according to the problem is 3 years (2018-2021). This operation results in a total of $ 50,000 that should be recognized as compensation.