Schmidt chooses to adjust theįair value of the options for the estimated forfeitures. By the end of Year 2, it is expected that only 80% of the options will be exercised. Each option has a value of $3 based upon an option pricing model.Īt the end of the first year, it is expected that 100% of employees will exercise the options. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. The exercise price equals the $6 market price of the common stock on the grant date. On January 1, Year 1, 90,000 options were granted for 90,000 $1 par common shares. Schmidt Electronics offered an incentive stock plan to its employees. Only round your final answer to the nearest dollar.)
What amount should be charged to compensation expense for the year ended December 31, Year 1? (Do not round intermediate calculations. Freeman used an appropriate pricing model and estimated the value of an option at $20. The market price of the stock was $35 per share at the date of grant. Freeman uses the estimated forfeiture rate to estimate compensation expense. No options were terminated during Year 1, but Freeman does have an experience of 5% forfeitures over the life of the stock options. The options may be exercised within a four-year period beginning January 1, Year 4, by the grantees still employed by the company. These options are intended to compensate employees for the next three years. On January 1, Year 1, Freeman Corporation granted 120,000 stock options to key employees which allowed these employees to purchase 120,000 shares of the corporation's common stock at $30 per share.
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