FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
A)$ 0
B)$ 15 million
C)$ 40 million
D)$120 million The $120 million total compensation is expensed equally over the three-year vesting period, reducing earnings by $40 million each year.

Question

Quizplus · Accepted Answer

The total compensation cost of $120 million ($8 market price x 15 million shares) is expensed over the three-year vesting period, resulting in a $40 million reduction in earnings each year.

FX Services Granted 15 Million of Its $1 Par Common