In 2014, Jericho Limited issued 10,000 stock options to its senior employees.At the time the options were granted, the shares were selling at $30, and the options allowed the owners to purchase shares in the company for $28.Assuming that Jericho decides to record all compensation related to employee stock options, what compensation expense should the company report in its 2014 financial statements?

Question

Quizplus · Accepted Answer

The compensation expense is calculated as the difference between the market price of the shares at the time the options were granted ($30) and the exercise price of the options ($28), multiplied by the number of options granted (10,000). This results in a total compensation expense of $20,000 ($2 difference x 10,000 options).

In 2014, Jericho Limited Issued 10,000 Stock Options to Its