Howell Company began business on March 1, 2017.At that time, it granted 250,000

Question

Howell Company began business on March 1, 2017.At that time, it granted 250,000 options, with a strike price of $5, to computer engineers in lieu of signing bonuses. The fair value of each option was estimated at $1 and the options vest over four years. What benefits did Howell Company create by granting options to the engineers instead of cash signing bonuses? What is the total expense that the company will record associated with the options granted in 2017? What will Howell record in 2017 for stock-option compensation expense?

Explanation / Answer

a.What benefits did Howell Company create by granting options to the engineers instead of cash signing bonuses?

This is an incentive give the right to buy the engineers to buy the shares a fixed strike price of $5 which will increase the morale within the orgnisation. As it is given after completion of requisite service will increase the engineers stability within the orgnisation due to which it will increase the performance of the company and cost efficiency.

b.What is the total expense that the company will record associated with the options granted in 2017?

250,000 options x $1.00 = $250,000

c.What will Howell record in 2017 for stock-option compensation expense?

250,000 options x $1.00 x (10/48 months) = $52,083

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