Question

On January 1, 2018, M Company granted 99,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2020, and expire on January 1, 2024. Each option can be exercised to acquire one share of $1 par common stock for $11. An option-pricing model estimates the fair value of the options to be $3 on the date of grant.

If unexpected turnover in 2019 caused the company to estimate that 10% of the options would be forfeited, what amount should M recognize as compensation expense for 2019?


Multiple Choice


$99,000


$33,000


$79,200


$49,500

Answer 1

$79,200

Step-by-step explanation:

The computation of the compensation expense for 2019 is shown below:

= Number of stock options × fair value of the options × remaining percentage × basis of share - Number of stock options

= [(99,000 × $3) × 90% × 2 ÷ 3] - 99,000

= $79,200

We simply applied the above formula so that the compensation expense for 2019 could come