On January 1, 2011, Ritter Company granted stock options to officers and key emp

Question

On January 1, 2011, Ritter Company granted stock options to officers and key employees for the purchase of 10,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2014 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $90,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2011 would include a credit to the Paid-in Capital—Stock Options account for
Answer




a.


$20,000.





b.


$30,000.





c.


$0.





d.


$18,000.

Explanation / Answer

Undere Fair value method.. Option "a" is the correct answer. Stock option price  = $20 And Market price  =   $26(Intrinsic price) Differenace = $26-20 = $6 For 10000 shares = $60000 For each of 3 years = $60000 /3 = $20000 Undere Black scholes model.. 90000/3 =$30000

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