On January 1, 2007, Doane Corp. granted an employee an option to purchase 6,000 shares of Doane's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $140,000. The option became exercisable on December 31, 2008, after the employee completed two years of service. The market prices of Doane's stock were as follows:
For 2008, Doane should recognize compensation expense under the fair value method of
A) $90,000.
B) $30,000.
C) $70,000.
D) $0.

Question

On January 1, 2007, Doane Corp. granted an employee an option to purchase 6,000 shares of Doane's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $140,000. The option became exercisable on December 31, 2008, after the employee completed two years of service. The market prices of Doane's stock were as follows:
 For 2008, Doane should recognize compensation expense under the fair value method of
A) $90,000. 
B) $30,000. 
C) $70,000. 
D) $0.

Quizplus · Accepted Answer

$140,000 ÷ 2 = $70,000.