On January 1, Year 1, Axis Corporation granted employees 48,000 stock options for 48,000 shares of $2 par value common stock. The exercise price on the date of issue was equal to the market price of $23. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $31 per option and the company does not expect any forfeitures of the options. What is the amount of compensation expense for Year 1?

Question

Quizplus · Accepted Answer

The correct answer is A. The amount of compensation expense for Year 1 is $744,000. This is calculated as follows:Fair value of options granted (48,000 options x $31 per option) = $1,488,000Less: Intrinsic value of options at grant date (48,000 options x ($23 - $2) per option) = $1,008,000Compensation expense for Year 1 = $744,000

On January 1, Year 1, Axis Corporation Granted Employees 48,000