Ask Question
24 January, 05:22

On January 1, 2017, RED Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by i achieved, butin 20) 1S. afte oxne year 6% in three years, Blue initially estimates that it is not probable the goal but in 2018, after one year, Blue estimates that it is probable that divisional revenue will increase by 6% by the end of 2019 earnings in 2018? Ignoring taxes, what is the effect on A. $200,000 B. $400,000 C. $600,000 D. $800,000

+5
Answers (1)
  1. 24 January, 07:01
    0
    B. $400,000

    Explanation:

    For computing the effect, we have to compute the total compensation expense which is shown below:

    Total compensation expense = Number of stock options issued * estimated fair value

    = 200,000 shares * $6

    = $1,200,000

    This compensation is for 3 years, but we have to compute for a one year

    So, it would be

    = Total compensation expense : number of years

    = $1,200,000 : 3 years

    = $400,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On January 1, 2017, RED Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers