On December 29, year 7, Almond Company granted 100,000 stock options to a group of 100...

On December 29, year 7, Almond Company granted 100,000 stock options to a group of 100 employees, enabling each employee to buy 1,000 shares for $20 per share. On the grant date, the shares had a market value of $16 per share and the options had a market value of $3.00 per option. The options vest over a 3-year period and become exercisable on January 1, year 11. Almond Company expects that, based on historical turnover, they will lose approximately 3 of the employees receiving the options per year during the vesting period. Compensation expense will be recognized uniformly over the vesting period. How much compensation expense will Almond Company recognize in year 8?

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Expert Solution

Answer:

Number of Options Exercised
       = Number of Options Granted (-) Market of Option over Vesting Period
       = 100,000 (-) [ Market Value x N. of options x Vesting peiod]
        = 100,000 (-) [ $3 x 1,000 shares x 3 ]
        =    100,000 (-) 9,000
        =   91,000 Options

Compensation expense will Almond Company recognize in year 8
       =   [ Number of Options Exercised   x Market Value of Options ] / Vesting Period
       =     91,000 x 3 / 3
       =   $91,000

Compensation expense will Almond Company recognize in year 8 = $91,000

ekkarill92 answered 1 year ago

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