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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1, 2019, Stoner Corporation granted compensatory share options to key employees for the purchase of shares of the company’s common stock at $25 per share. The options are intended to compensate employees for the next 2 years. The options are exercisable within a 4-year period beginning January 1, 2021, by grantees still in the employ of the company. The fair value of each option was $7 on the date of grant. Stoner expects to distribute 10,000 shares of treasury stock when options are exercised. The treasury stock was acquired by Stoner during 2018 at a cost of $28 per share and was recorded under the cost method. How much should Stoner charge to compensation expense for the year ended December 31, 2019?

  1. a. $70,000
  2. b. $35,000
  3. c. $30,000
  4. d. $15,000

To determine

Identify the amount charged by the Corporation S to compensation expense for the year ended December 31, 2019.

Explanation

Share Option Plans: It is an option given to the employees to buy a specific number of shares of the company at a pre-determined price in particular period of time.

Compute the amount charged by the Corporation S to compensation expense for the year ended December 31, 2019:

Compensation expense allocated each year = Total compensation cost of optionsVesting period=$70,0002 years=$35,000

Working note 1: Compute the total compensation cost of options

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