On January 1, Year 1, Axis Corporation Granted Employees 66,000

question 126

Multiple Choice

On January 1, Year 1, Axis Corporation granted employees 66,000 stock options for 66,000 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $20. 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. At the end of Year 2, the fair value of each option is $44. What is the journal entry for compensation expense for Year 2?

• A) \[\begin{array} { | l | r | l | }
• \hline \text { Compensation Expense } & 1,617,000 & \\
• \hline \text { Liability for Stock-based Compensation } & & 1,617,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | l | }
• \hline \text { Compensation Expense } & 1,320,000 & \\
• \hline \text { Liability for Stock-based Compensation } & & 1,320,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | l | }
• \hline \text { Compensation Expense } & 1,617,000 & \\
• \hline \text { Deferred Compensation } & & 1,617,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Compensation Expense } & 1,320,000 & \\
• \hline \text { Deferred Compensation } & & 1,320,000 \\
• \hline
• \end{array}\]

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