Question

Crane Company on January 1, 2018, granted stock options for 63000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $25 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $627000. The options are exercisable beginning January 1, 2021, provided those key employees are still in Crane’s employ at the time the options are exercised. The options expire on January 1, 2022. The amount of compensation expense Crane should record for 2017 under the fair value method is:_______.
a. $0.
b. $207000.
c. $103500.
d. $310500.

Answer 1

The amount of compensation expense Crane should record for 2017 under the fair value method is $207000

Solution:

Given ,

Stock options for 63000 shares

$10 par value common stock

$25 per share and the option price was $20

Total compensation expense = $627000

627000/3= $207,000

$207,000 decrease