On December 29 2017 Kolek Company granted 100000 stock optio

On December 29, 2017, Kolek Company granted 100,000 stock options to a group of 100 employees, enabling each employee to buy 1,000 shares for $20 per share. On the grant date, the shares had a market value of $16 per share and the options had a market value of $3.00 per option. The options vest over a 3-year period and become exercisable on January 1, 2021. Kolek Company expects that, based on historical turnover, they will lose approximately 3 of the employees receiving the options per year during the vesting period. Compensation expense will be recognized uniformly over the vesting period.

Assuming all 100,000 options are exercised, what will be the net increase or decrease in stockholders’ equity as a result of the granting and exercising of the options.

Multiple Choice

An increase of $2,300,000

A decrease of $300,000

An increase of $1,700,000

An increase of $2,000,000

Solution

If all 100.000 Options are execercised, the increase in shareholders equity will be as follows:-

Number of shares excercised as options * Value of each share

That is = 100000*20

net increase in stockholders’ equity as a result of the granting and exercising of the options is $ 2,000,000 /-

Answer is an Increase of $ 2,000,000 /-.