On January 1, 2009, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2010, after the employee completed two years of service. The option was exercised on January 10, 2011. The market prices of D's stock were as follows: January 1, 2009, $30; December 31, 2010, $50; and January 10, 2011, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2009, D should recognize compensation expense of:
A)$ 0.
B)$24,000.
C)$30,000.
D)$90,000.The total compensation is $48,000, the option model price of $8 each times the number of options, 6,000.Since the service period is two years, the compensation expense for 2009 is $24,000 ($48,000/2 years).

Question

Quizplus · Accepted Answer

The compensation expense to be recognized in 2009 is based on the number of years of service completed by the employee during that year, which is one year. Therefore, the compensation expense for 2009 is half of the total compensation expense, which is $24,000. This is because the option became exercisable on December 31, 2010, which means that the employee had completed two years of service at that point. This is the only choice that accurately reflects the calculation of the compensation expense for 2009.