On January 1, 2018, D Corp. granted an employee an option to purchase 6,000 shares of D's $4 par common stock at $22 per share. The options became exercisable on December 31, 2019, after the employee completed two years of service. The option was exercised on January 10, 2020. The market prices of D's stock were as follows: January 1, 2018, $34; December 31, 2019, $51; and January 10, 2020, $47. An option pricing model estimated the value of the options at $10 each on the grant date. For 2018, D should recognize compensation expense of:

Question

Business

Davis Holt

2 November, 03:37

On January 1, 2018, D Corp. granted an employee an option to purchase 6,000 shares of D's $4 par common stock at $22 per share. The options became exercisable on December 31, 2019, after the employee completed two years of service. The option was exercised on January 10, 2020. The market prices of D's stock were as follows: January 1, 2018, $34; December 31, 2019, $51; and January 10, 2020, $47. An option pricing model estimated the value of the options at $10 each on the grant date. For 2018, D should recognize compensation expense of:

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Lilyana Juarez · Answer 1

For 2018, D should recognize compensation expense of $30,000

Explanation:

According to the given data we have the following:

granted option to purchase shares = 6,000

value of the options on the grant date=$10

Therefore, in order to calculate the amount that For 2018, D should recognize compensation expense of, we have to calcuatte first the total expense as follows:

Total expense = granted option to purchase shares * value of the options on the grant date

Total expense = 6,000*$10=$60,000

Therefore, Per year expense = $60,000 / 2 = $30,000

For 2018, D should recognize compensation expense of $30,000