Question

On December 29, year 7, Almond Company granted 100,000 stock options to a group of 100 employees, enabling each employee to buy 1,000 shares for $20 per share. On the grant date, the shares had a market value of $16 per share and the options had a market value of $3.00 per option. The options vest over a 3-year period and become exercisable on January 1, year 11. Almond Company expects that, based on historical turnover, they will lose approximately 3 of the employees receiving the options per year during the vesting period. Compensation expense will be recognized uniformly over the vesting period. How much compensation expense will Almond Company recognize in 2018?

a. $0
b. $100,000
c. $91,000
d. $97,000

Answer 1

Option (c) : $91,000

Step-by-step explanation:

As per the data given in the question,

Number of options vest over a 3-year period =100,000 - (3 × 1000 × 3)

= 91,000 options

Total compensation expense Almond Company recognize in a period of 3 years =

91000 × market value of options

= 91000 × $3

= $273,000

Compensation expense recognized in 2018 = $273,000 ÷ $3

= $91,000

Option (c) : $91,000 is correct answer