Question

On January 1, Year 1, Abbott Company granted 92,000 stock options to certain executives. The options are exercisable no sooner than December 31, Year 3, and expire on January 1, Year 7. Each option can be exercised to acquire one share of $1 par common stock for $14. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. What is the amount of compensation expense for Year 1? (Round your answer to the nearest dollar amount.)

Answer 1

$153,333

Step-by-step explanation:

The computation of the compensation expense for the year 1 is shown below:

= (Number of Stock options granted × fair value of the options) ÷ (number of years)

= (92,000 stock options × $5) ÷ 3 years

= $460,000 ÷ 3 years

= $153,333

By applying the above formula we can get the compensation expense for the year 1