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. In 2017, the company determined that the actual annual average increase was 16%. The compensation expense for 2017 will be
A) $123,750
B) $247,500
C) $82,500
D) $55,000

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. In 2017, the company determined that the actual annual average increase was 16%. The compensation expense for 2017 will be
A) $123,750 
B) $247,500 
C) $82,500 
D) $55,000

Quizplus · Accepted Answer

The correct answer is A because the compensation expense for 2017 is $123,750. This is calculated by taking the compensation expense for 2016, which is $107,500, and multiplying it by 1.16, which is the actual annual average increase.

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