In Order to Retain Certain Key Executives, Jensen Corporation Granted

question 59

Multiple Choice

In order to retain certain key executives, Jensen Corporation granted them incentive share options on December 31, 2009.50,000 options were granted at an option price of $35 per share.Market prices of the shares were as follows:

The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2010.The Black-Scholes option pricing model determines total compensation expense to be $500,000.What amount of compensation expense should Jensen recognize as a result of this plan for the year ended
December 31, 2010 under the fair value method?

• A)$250,000.
• B)$500,000.
• C)$550,000.
• D)$1,750,000.

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Definitions:

Carrying Costs

The complete expense associated with keeping inventory, encompassing storage fees, insurance, and the cost of missed opportunities.

Safety Stocks

Extra inventory kept to prevent stockouts and ensure adequate supply in the face of demand or supply variability.

Restocking Costs

Expenses associated with replenishing inventory, including purchasing, shipping, and handling costs.

Collection Policy

The set of guidelines a company uses to monitor and manage the collection of accounts receivable or owed debts.