Under its executive stock option plan, M Corporation granted options on January 1, 2018, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated; however, unexpected turnover during 2019 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2019?
A) $18.5 million.
B) $18 million.
C) $20 million.
D) $19 million.

Question

Quizplus · Accepted Answer

11ea937b_3595_78b3_a419_7bd1e1cffdc7_TB2599_00 The $60 million total compensation is originally expensed equally over the three-year vesting period, reducing earnings by $20 million in 2018. The company should adjust the cumulative amount of compensation expense recorded to date in the year the estimate changes. 11ea937b_3595_78b4_a419_fb8104aa63fb_TB2599_00

Under Its Executive Stock Option Plan, M Corporation Granted Options