On January 1, 2011, G Corp. granted stock options to key employees for the purch

Question

On January 1, 2011, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company’s common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2013, by the grantees still in the employ of the company. No options were terminated during 2011, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $31 per share at the date of the grant. G Corp. used the binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2011?
A. $320,000
B. $384,000
C. $307,200
D. $400,000

Explanation / Answer

B. $384,000

Total compensation = (80,000 options × $10 × 96%) / 2

Total compensation = $768,000 / 2

Total compensation = $384,000

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