White company is a calendar-year firm with operations in several countries. at january 1, 2018, the company had issued 10,000 executive stock options permitting executives to buy 10,000 shares of stock for $25. the vesting schedule is 30% the first year, 30% the second year, and 40% the third year (graded-vesting). the fair value of the options is estimated as follows: vesting date amount vesting fair value per option dec. 31, 2018 30 % $ 2.80 dec. 31, 2019 30 % $ 3.00 dec. 31, 2020 40 % $ 3.75 what is the compensation expense related to the options to be recorded in 2019?

Question

Marcelo Lewis

Business

19 January, 14:19

White company is a calendar-year firm with operations in several countries. at january 1, 2018, the company had issued 10,000 executive stock options permitting executives to buy 10,000 shares of stock for $25. the vesting schedule is 30% the first year, 30% the second year, and 40% the third year (graded-vesting). the fair value of the options is estimated as follows: vesting date amount vesting fair value per option dec. 31, 2018 30 % $ 2.80 dec. 31, 2019 30 % $ 3.00 dec. 31, 2020 40 % $ 3.75 what is the compensation expense related to the options to be recorded in 2019?

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Madden Irwin · Answer 1

The compensation expense related to the options to be recorded in 2019 is $9,500.

Explanation:

The relevant fair value at Dec. 31, 2019 = (10,000 * 30% * $3) * (1/2) = $9,000 * 0.5 = $4,500

The relevant fair value at Dec. 31, 2020 = (10,000 * 40% * $3.75) * (1/3) = $15,000 * (1/3) = $5,000

Compensation expense = $4,500 + $5,000 = $9,500

Therefore, the compensation expense related to the options to be recorded in 2019 is $9,500.