S Corporation created a stock option plan for its two top executives.The plan provided that each executive would receive 1,000 options,which would enable him or her to purchase 100 shares at 75 percent of the market price on the date the options,became exercisable.The options were exercisable in two years.At the date of granting the options,the market price of the shares was $12 per share.The date of measurement for the stock option plan was the:
A) date of grant.
B) end of the first year.
C) end of the second year.
D) date the employees' exercise their options.

Question

Quizplus · Accepted Answer

The date of measurement for the stock option plan is the end of the second year, as this is when the options become exercisable. At this point, the options can be exercised by the executives and the company can determine the expense related to the stock option plan based on the difference between the market price at the end of the second year and the exercise price of 75% of that market price. This will determine the number of shares that the executives can purchase at a discount, and the associated expense that the company will need to record.

S Corporation Created a Stock Option Plan for Its Two