In order to retain certain key executives, Tanner Corporation granted them incentive stock options on December 31, 2006. 50,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows:
The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2007. The Black-Scholes option pricing model determines total compensation expense to be $500,000. What amount of compensation expense should Tanner recognize as a result of this plan for the year ended December 31, 2007 under the fair value method?
A) $250,000
B) $500,000
C) $550,000
D) $1,750,000

Question

In order to retain certain key executives, Tanner Corporation granted them incentive stock options on December 31, 2006. 50,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows:
 The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2007. The Black-Scholes option pricing model determines total compensation expense to be $500,000. What amount of compensation expense should Tanner recognize as a result of this plan for the year ended December 31, 2007 under the fair value method?
A) $250,000 
B) $500,000 
C) $550,000 
D) $1,750,000

Quizplus · Accepted Answer

$500,000 ÷ 2 = $250,000

In Order to Retain Certain Key Executives, Tanner Corporation Granted