Question

On January 1, 2016, Webber Company granted 77,300 stock options to certain executives. The options are...

On January 1, 2016, Webber Company granted 77,300 stock options to certain executives. The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2022. Each option can be exercised to acquire one share of $3 par common stock for $7. An option-pricing model estimates the fair value of the options to be $3 on the date of grant.

If unexpected turnover in 2017 caused the company to estimate that 10% of the options would be forfeited, what amount should Webber recognize as compensation expense for 2018?

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Answer #1
Solution
Compensation expense for 2016           77,300 =77300*3*1/3
Compensation expense for 2017           77,300 =77300*3*1/3
Cumulative expense at end of 2018        208,710 =77300*3*90%
Less: Compensation expense for 2016           77,300
Less: Compensation expense for 2017           77,300
Compensation expense for 2018 $ 54,110
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