On December 29 2017 Almond Company granted 100000 stock opti

On December 29, 2017, Almond 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. Almond 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. How much compensation expense will Almond Company recognize in 2018?

Multiple Choice

$0

$100,000

$91,000

$97,000

Solution

Answer :- Option C). $ 91,000.

Explanation :- Number of options expected to vest over the period of 3 years = 100000 - (3 * 1000 * 3)

= 100000 - 9000

= 91000 Options.

Total compensation expense recognized over the period of 3 years = 91000 * 3 (Market value of option)

= $ 273000.

Compensation expense recognized in Year 2018 = 273000 / 3

= $ 91,000. (Option C).