Question

On January 1, 2021, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2022, after the employee completed two years of service. The option was exercised on January 10, 2023. The market prices of D's stock were as follows: January 1, 2021, $30; December 31, 2022, $50; and January 10, 2023, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2021, D should recognize compensation expense of:

Answer 1

Answer:

$24,000

Explanation:

The computation of compensation expense is shown below:-

Total expense = Purchase shares × value of the options

= 6,000 × $8

= $48,000

Per year expenses = Total expenses ÷ Years of service

= $48,000 ÷ 2

= $24,000

Therefore, for computing the compensation expense we simply deduct the years of service from total expenses.