Question

On January 1, 2021, Marigold Corp. granted Tim Telfer, an employee, an option to buy 5100 shares of Marigold Co. stock for $25 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 $32700. Telfer exercised his option on September 1, 2021, and sold his 5100 shares on December 1, 2021. Quoted market prices of Marigold Co. stock during 2021 were

January 1		$24 per share
September 1		$29 per share
December 1		$33 per share

The service period is for three years beginning January 1, 2021. As a result of the option granted to Telfer, using the fair value method, Marigold should recognize compensation expense for 2021 on its books in the amount of

$10900.

$32700.

$40800.

$8100.

Answer 1

Correct option is $10900

Compensation expenses Recognised by company on Fair value basis for 5100 shares is $32700

Under Employee stock option , compensation expense is recognised at the fair value of the option vested and Exercise . Compensation will be recognised for actual number of option vested and exercise.

Then this exercise option cost or expenses are Recognised over the service period .

As the Service period is of 3 year ,Service expense in the form of option will be recognised over 3 year

32700/3 =10900