Question

One company granted options compensation to four of its executives, with a market value of $...

One company granted options compensation to four of its executives, with a market value of $ 600,000 and a four-year term of service. In the first two years of the service period, the company recognized compensation expense of $ 150,000 each year, with the corresponding credit (each year) to “Paid-in capital from stock options”. During the third year, one of the executives resigned from the company and, therefore, from compensation. At the end of the third year, the company will recognize compensation expense in the amount of:
a. $ 150,000 
b. $ 75,000 
c. $ 0
d. Credit the expense account for $ 75,000

Homework Answers

Answer #1
Total Compensation expense for 4 years 600000
Less: Comensation expense already recognized in 2 years 300000
Remaining compenssation expense to be recognized 300000
Less: Service terminated so as compensation (600000*1/4) 150000
Net compensation expense to be recognized in next two years 150000
Compensation expense to be recognized in Third year = 150000*1/2 = 75000
Answer is b. $75,000
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