ExpertMedium1 markMultiple Choice
CPA · Question 28 · Area II: Technical Accounting
On January 1, Year 1, a company grants 10,000 stock options to executives. The options vest after 3 years of service. The fair value of each option is $15 on the grant date. On December 31, Year 1, the fair value of the option is $18. <br/><br/>What is the compensation expense for Year 1?
On January 1, Year 1, a company grants 10,000 stock options to executives. The options vest after 3 years of service. The fair value of each option is $15 on the grant date. On December 31, Year 1, the fair value of the option is $18. <br/><br/>What is the compensation expense for Year 1?
Answer options:
A.
$150,000
B.
$50,000
C.
$60,000
D.
$0
How to approach this question
Equity-classified awards are measured at Grant Date Fair Value. Expense is spread over the vesting period. Do not remeasure for FV changes.
Full Answer
B.$50,000✓ Correct
B
ASC 718 requires equity-classified stock options to be measured at the grant-date fair value ($15). The total cost ($150,000) is recognized over the requisite service period (3 years). Year 1 = $150,000 / 3 = $50,000.
Common mistakes
Remeasuring at year-end fair value (only done for liability awards).
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