In Order to Retain Certain Key Executives, Smiley Corporation Granted

question 63

Multiple Choice

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2013. 120,000 options were granted at an option price of $35per share. Market prices of the stock were as follows: The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2014. The Black-Scholes option pricing model determines total compensation expense to be $1,200,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2014 under the fair value method?

• A) $2,100,000.
• B) $1,320,000.
• C) $1,200,000.
• D) $ 600,000.

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Definitions:

Multidomestic Firm

A multidomestic firm is a company that operates in multiple countries, tailoring its products, marketing, and operations to each local environment rather than standardizing globally.

Transnational Firm

A company that operates beyond its home country, managing production or delivering services in more than one country.

Multinational Firm

A business which functions across various nations, overseeing the manufacturing or provision of services beyond its original country.

World Trade Organization (WTO)

A permanent institution that sets rules governing trade between its members through panels of trade experts who decide on trade disputes between members and issue binding decisions.