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On January 1, 2019, QRS Company granted 80,000 stock options to certain executives. The options may be exercised on or after December 31, 2022, and expire on January 1, 2026. Each option can be exercised to acquire one share of $1 par common stock for $5. The fair value of each options was estimated to be $3 on the grant date. What amount should QRS recognize as compensation expense for 2020

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Answer:

The amount QRS should recognize as compensation expense for 2020 is $80,000.

Explanation:

NS = Number of shares granted as stock option = 80,000

FV = Fair value of the options on the date of grant = $3

N = Number of years from December 31, 2022 to January 1, 2026 = 3

Therefore, we have:

Total compensation expenses = NS * FV = 80,000 * $3 = $240,000

Amount QRS should recognize as compensation expense for 2020 = Total compensation expenses / n = $240,000 / 3 = $80,000

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