To encourage employee ownership of the company's common shares, KL Corp. permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During May, employees purchased 10,000 shares at a time when the market price of the shares on the New York Stock Exchange was $15 per share. KL will record compensation expense associated with the May purchases of:
A) $0.
B) $15,000.
C) $22,500.
D) $150,000.

Question

Quizplus · Accepted Answer

$\begin{array}{|l|r|l|}
\hline \text { Cash }(\$ 15 \times 10,000 \times 85 \%) & 127,500 & \
\hline \text { Compensation expense }(\$ 15 \times 10,000 \times 15 \%) & 22,500 & \
\hline \text { Common stock }(\$ 15 \times 10,000) & & 150,000 \
\hline
\end{array}$

To Encourage Employee Ownership of the Company's Common Shares, KL