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3 August, 09:47

Darlington Inc., permits any of its employees to buy shares directly from the company. There are no brokerage fees and shares can be purchased at a 10% discount. During May, employees purchased 14,000 shares at a time when the market price of the shares was $10 per share. Darlington will record compensation expense associated with the May purchases of: a) $ 195,000.

b) $ 22,150.

c) $ 21,450.

d) $ 0.

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  1. 3 August, 09:57
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    (c) $ 21,450

    Explanation:

    Computation of the compensation expense associatd with the may purchases using intrinsic value method. We have,

    Market price = $ 15 per share

    Exercise price = 15 - (15*11%) = 15 - 1.65 = $ 13.35

    Number of shares = 13,000

    Compensation expenses = Number of shares (Market price - Exercise price)

    Compensation expenses = 13,000 (15 - 13.35) = $ 21,450

    Hence, KL will record compensation expense associated with the May purchases is $ 21,450
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