On January 1, 2018 Vaughn Manufacturing granted Jack Buchanan, an employee, an o

Question

On January 1, 2018 Vaughn Manufacturing granted Jack Buchanan, an employee, an option to buy 500 shares of Vaughn Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5040. Buchanan exercised his option on September 1, 2018, and sold his 500 shares on December 1, 2018. Quoted market prices of Vaughn Co. stock during 2018 were: January 1 $40 per share

September 1 $48 per share

December 1 $54 per share

The service period is for two years beginning January 1, 2018. As a result of the option granted to Buchanan, using the fair value method, Vaughn should recognize compensation expense for 2018 on its books in the amount of

Explanation / Answer

Answer:

Compensation expense for 2018 on its books in the amount of :

Total compensation expense / 2 = 5040 / 2 = 2520

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