Green Company is a calendar-year U.S. firm with operations in several countries. At January 1, 2018, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $25. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting). The fair value of the options is estimated as follows: Assuming Green uses the straight-line method, what is the compensation expense related to the options to be recorded in 2019?
A) $130,667.
B) $200,000.
C) $333,333.
D) $400,000.

Question

Green Company is a calendar-year U.S. firm with operations in several countries. At January 1, 2018, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $25. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting). The fair value of the options is estimated as follows:  Assuming Green uses the straight-line method, what is the compensation expense related to the options to be recorded in 2019?
A) $130,667. 
B) $200,000. 
C) $333,333. 
D) $400,000.

Quizplus · Accepted Answer

11ea937b_35a0_2750_a419_c94129a82077_TB2599_00 GAAP allows companies to use the straight-line method. The $392,000 total compensation cost is allocated equally to 2018, 2019, and 2020 at $130,667 per year.

Green Company Is a Calendar-Year U