Exhibit 15-6
On January 1, 2016, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was
$16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table: On the grant date, the company estimates the annual average sales increase will be 14%.
-Refer to Exhibit 15-6. The estimated total compensation cost will be
A) $55,000.
B) $123,750.
C) $27,500.
D) $247,500.

Question

Exhibit 15-6
On January 1, 2016, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was
$16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table:  On the grant date, the company estimates the annual average sales increase will be 14%.
-Refer to Exhibit 15-6. The estimated total compensation cost will be
A) $55,000. 
B) $123,750. 
C) $27,500. 
D) $247,500.

Quizplus · Accepted Answer

The estimated total compensation cost is calculated by multiplying the fair value of each option by the number of options granted. If the fair value per option is $2.75 and 45,000 options are granted, the total estimated compensation cost is $2.75 * 45,000 = $123,750.

Exhibit 15-6 On January 1, 2016, 50 Executives Were Given a Performance-Based