On January 1, Year 1, Axis Corporation Granted Employees 53,500

question 64

Multiple Choice

On January 1, Year 1, Axis Corporation granted employees 53,500 stock options for 53,500 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $24. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $39 per option and the company does not expect any forfeitures of the options. What is the journal entry for compensation expense for Year 1?

• A) \[\begin{array} { | l | r | r | }
• \hline \text { Compensation Expense } & 1,043,250 & \\
• \hline \text { Liability for Stock-based Compensation } & & 1,043,250 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Compensation Expense } & 1,284,000 & \\
• \hline \text { Liability for Stock-based Compensation } & & 1,284,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | r | }
• \hline \text { Compensation Expense } & 1,043,250 & \\
• \hline \text { Deferred Compensation } & & 1,043,250 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Compensation Expense } & 1,284,000 & \\
• \hline \text { Deferred Compensation } & & 1,284,000 \\
• \hline
• \end{array}\]

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Definitions:

Marginal Utility

This term refers to the additional satisfaction or utility gained by consuming one more unit of a good or service.

Rational Consumer

An economic theory assumption that consumers make purchasing decisions based on their rational outlook, available information, and self-interest to maximize utility.

Income Effect

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.

Normal Good

A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.