On January 1, 2014, Moonshine Company granted 90,000 stock options to certain ex

Question

On January 1, 2014, Moonshine Company granted 90,000 stock options to certain executives.

The options are exercisable no sooner than December 31, 2016, and expire on January 1, 2020.

Each option can be exercised to acquire one share of $1 par common stock for $12.

An option-pricing model estimates the fair value of the options to be $5 on the date of grant.

No forfeitures were anticipated.

A)What amount should Moonshine recognize as compensation expense for 2014?

A) $30,000. B) $60,000. C) $120,000. D) $150,000.

B)If unexpected turnover in 2015 caused the company to estimate that 10% of the options would be forfeited, what amount should Moonshine recognize as compensation expense for 2015?

A) $30,000. B) $60,000. C) $120,000. D) $150,000

Explanation / Answer

Expense for the year 2014 = 90000*5/3 i.e 150000

Expense for the year 2015 = (( 90000*0.90*5)*2/3)-150000 i.e 120000

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