Question

On January 1, Year 1, Lord Corp. granted stock options for 10,000 shares at $38 per share as additionalcompensation for services to be rendered over the next three years. Using an acceptable option pricingmodel, Lord calculated total compensation cost of $90,000. The options are exercisable during a 4-yearperiod beginning January 1, Year 4, by grantees still employed by Lord. Market price of Lord's stock was $47per share at the grant date. No stock options were terminated during Year 1. In Lord's Year 1 incomestatement, what amount should be reported as compensation expense pertaining to the options?a. $90,000b. $40,000c. $30,000d. $0

Answer 1

c. $30,000

Step-by-step explanation:

At the first year, we are giving with the estimated comensation liability of 90,000 using an acceptable option pricing model.

This expense will by recognize over the three years, because the services are expected to last three years.

90,000/3 = 30,000

Stock Compensation expense 30,000

Paid-in Capital Stock Options 30,000