Question

On January 1, 2021, D Corp. granted an employee an option to purchase 6,500 shares of D's $3 par common stock at $19 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, $36; December 31, 2022, $57; and January 10, 2023, $46. 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:________

a. $ 0.
b. $26,000.
c. $117,000.
d. $19,500.

Answer 1

b. $26,000

Step-by-step explanation:

Calculation to determine how much D should recognize as compensation expense

Compensation expense =6,500 shares

x $8 per option / 2 years of service

Compensation expense = 52,000 / 2 years of service

Compensation expense= $26,000

Therefore For 2021, D should recognize compensation expense of:$26,000