On June 30, 2014, Norman Corporation granted compensatory stock options for 50,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $600,000. The options are exercisable beginning January 1, 2015, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2016.On January 4, 2015, when the market price of the stock was $42 per share, all 50,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2014 using the fair value method?

Question

Quizplus · Accepted Answer

The fair value of the options on the grant date is $600,000. The compensation expense is recognized over the vesting period, which is from January 1, 2015 to June 30, 2016. The compensation expense for 2014 is 1/3 of $600,000, which is $240,000.

On June 30, 2014, Norman Corporation Granted Compensatory Stock Options