If unexpected turnover in 2010 caused the company to estimate that 10% of the options would be forfeited, what amount should M recognize as compensation expense for 2010?
A)$ 30,000
B)$ 60,000
C)$120,000
D)$150,000 (90,000 5 = $450,000; $450,000 90% = $405,000 2/3 = $270,000; $270,000 150,000 = $120,000)

Question

Quizplus · Accepted Answer

To determine the amount of compensation expense, we need to calculate the total number of options granted and adjust it for the estimated forfeiture rate (10%). The total number of options granted is 450,000, and the adjusted number is 405,000 (450,000 x 90%). The total compensation expense is then calculated by multiplying the adjusted number of options by the fair value per option (which is $2/3). Therefore, the total compensation expense for 2010 is $120,000 (405,000 x $2/3). Option C is the correct answer.

If Unexpected Turnover in 2010 Caused the Company to Estimate