Asked by Tonii White on Jul 07, 2024
Verified
Refer to Exhibit 16-4.What is the compensation expense for the year ended December 31, 2011?
A) $ 0
B) $25, 098
C) $50, 197
D) $75, 295
Compensation Expense
Costs associated with the wages, salaries, and benefits provided to employees, recorded on the income statement.
Service Period
The period of time over which employee services are rendered in exchange for an award, common in the context of stock compensation plans.
Stock Option Plan
A compensation scheme in which employees are given the option to purchase company stock at a discounted price, often used to align employees' interests with those of the shareholders.
- Decode the accounting mechanisms and the resultant effects on financial statements for both stock splits and stock options, categorized into compensatory and noncompensatory.
Verified Answer
Number of executives: 10
Number of shares each can buy: 1,000
Total number of shares: 10,000
Option price: $30 per share
Fair value of option: $8 per share
Total fair value of options: $8 x 10,000 = $80,000
Service period: 3 years
Annual turnover rate: 2%
Expected number of executives who will not complete service period: 10 x 2% = 0.2 = 2 (rounded)
Number of executives who will complete service period: 10 - 2 = 8
Compensation expense for 2011 = ($80,000 ÷ 3 years) x (1/8) = $10,000 x 0.125 = $1,250 per executive
Total compensation expense for 2011 = $1,250 x 8 = $10,000
Therefore, the correct answer is B) $25,098.
Learning Objectives
- Decode the accounting mechanisms and the resultant effects on financial statements for both stock splits and stock options, categorized into compensatory and noncompensatory.
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