Question

To encourage employee ownership of the company's common shares, KL Corp. permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 12% discount. During May, employees purchased 13,000 shares at a time when the market price of the shares on the New York Stock Exchange was $15 per share. KL will record compensation expense asscoiated with the May purchases of:

A.) $24,200
B.) $0
C.) $195,000
D.) $23,400

Answer 1

d. $23,400

Step-by-step explanation:

The computation of compensation expense is shown below:-

Total number of shares purchased = 13,000

Market price of share = $15 per share

Compensation expenses per share = issue price at 12% discount

= $15 × 12%

= $1.8

Total compensation expenses = Compensation expenses per share × Total number of shares purchased

= $1.8 × 13,000

= $23,400

So, for computing the compensation expenses we applied the above formula.