On December 31, 2014, Houser Company granted some of its executives options to purchase 90,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,800,000. The options become exercisable on January 1, 2015, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2015. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2014, as a result of this transaction under the fair value method?

Question

Quizplus · Accepted Answer

Under the fair value method, the total compensation expense of $1,800,000 is recognized over the service period, not immediately at the grant date. Therefore, there is no impact on Houser's total stockholders' equity for the year ended December 31, 2014, as the expense recognition begins in 2015.

On December 31, 2014, Houser Company Granted Some of Its