The exercise price and market price of stock under a fixed compensatory stock option plan are equal on the grant date.The fair value of the options is greater than the option price.Under the fair value method,
A) compensation expense will be recognized in connection with the option plan.
B) no compensation expense will be recognized in connection with the option plan.
C) deferred compensation will be recognized.
D) no paid-in capital from stock options will be recognized.

Question

Quizplus · Accepted Answer

If the fair value of the options is greater than the option price, it means that the options have intrinsic value at the grant date. Under the fair value method, the intrinsic value of the options must be recognized as compensation expense over the vesting period. Therefore, the correct choice is A – compensation expense will be recognized in connection with the option plan.

The Exercise Price and Market Price of Stock Under a Fixed