Under its executive stock option plan, W Corporation granted options on January 1, 2009, 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, 2011 (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 are anticipated. The options are exercised on April 2, 2012, when the market price is $21 per share. By what amount will W's shareholder's equity be increased?
A)$ 60 million
B)$270 million
C)$315 million
D)$330 million The $60 million total compensation is expensed equally over the three-year vesting period, increasing the balance in the Paid-in capital-stock options account.$315 + 15 60 = $270 Note: The market price at exercise is irrelevant.

Question

Quizplus · Accepted Answer

The increase in shareholder's equity is calculated by the cash received from the exercise of options (15 million shares x $18 exercise price = $270 million) plus the fair value of the options recognized as compensation expense ($60 million), totaling $270 million.

Under Its Executive Stock Option Plan, W Corporation Granted Options