Question
FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common
FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
A) $0.
B) $15 million.
C) $40 million.
D) $120 million.
On January 1, 2018, M Company granted 90,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2020, and expire on January 1, 2024. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant.
What amount should M recognize as compensation expense for 2018?
A) $30,000.
B) $60,000.
C) $120,000.
D) $150,000.
Compensation expense must be adjusted during the service period to reflect changes in the fair value of options caused by changes in the market price of the underlying shares. TRUE OR FALSE?
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