On January 1, Year 1, Davenport Corporation Granted an Employee

question 99

Multiple Choice

On January 1, Year 1, Davenport Corporation granted an employee 10,000 options to purchase 10,000 shares of Davenport's $10 par common stock at $30 per share. The options became exercisable on December 31, Year 3, after the employee completed three years of service. The option was exercised on February 1, Year 4. The market prices of Davenport's stock were as follows: January 1, Year 1, $40; December 31, Year 3, $60; and February 1, Year 4, $55. An options pricing model estimated the value of the options at $20 each on the grant date. For Year 1, Davenport should recognize compensation expense of ________. (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

• A) $0
• B) $66,667
• C) $100,000
• D) $200,000

---

Definitions:

Total Utility

The total satisfaction received from consuming a particular quantity of goods and services.

Marginal Utility

The change in satisfaction or utility that an individual gains from consuming an additional unit of a good or service.

Consumer Surplus

The disparity in the total spending consumers are willing and able to commit to a good or service compared to what they truly spend.

Quantity Demanded

The overall volume of a good or service that buyers are prepared and able to acquire at a designated price level.