Exhibit 15-6 On January 1, 2014, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was $16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table: On the grant date, the company estimates the annual average sales increase will be 14%.
-Refer to Exhibit 15-6. The estimated total compensation cost will be
A) $ 55,000
B) $123,750
C) $ 27,500
D) $247,500

Question

Exhibit 15-6 On January 1, 2014, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was $16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table:  On the grant date, the company estimates the annual average sales increase will be 14%.
-Refer to Exhibit 15-6. The estimated total compensation cost will be
A) $ 55,000 
B) $123,750 
C) $ 27,500 
D) $247,500

Quizplus · Accepted Answer

The estimated total compensation cost will be calculated as follows:

Maximum number of shares that can be awarded = 50 executives × 300 shares/executive = 15,000 shares

Grant date fair value of an option = $16.50

Total compensation cost = Maximum number of shares × grant date fair value of an option = 15,000 × $16.50 = $247,500

Therefore, the estimated total compensation cost will be $247,500, which corresponds to choice letter D.

Exhibit 15-6 on January 1, 2014, 50 Executives Were Given