On January 1, 2016. D Corp. granted an employee an option to purchase 7,000 shar

Question

On January 1, 2016. D Corp. granted an employee an option to purchase 7,000 shares of D's $3 par common stock at $20 per share. The options became exercisable on December 31, 2017, after the employee completed two years of service. The option was execised on January 10, 2018. The market prices of D's stock were as follows: January 1, 2016, $34: December 31, 2017, $56; and January 10, 2018, $44. An option pricing model estimated the value of the options at $8 each on the grant date. For 2016, D should recognize compensations expense of:

A.) $28,000

B.) $119,000

C.) $0

D.) $21,000

Please show work

Explanation / Answer

Compensation Expenses =( Par value - agreed value ) x No. of shares

Compensation Expenses = (20 - 3) x 7000 = 119000

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