In Order to Retain Certain Key Executives, Smiley Corporation Granted

question 61

Multiple Choice

In order to retain certain key executives, Smiley Corporation granted them incentive share options on December 31, 2014.80,000 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, 2015.The Black-Scholes option pricing model determines total compensation expense to be $800,000.What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2015 under the fair value method?

• A)$1,400,000.
• B)$880,000.
• C)$800,000.
• D)$400,000.

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Definitions:

Inflationary Gap

A situation where aggregate demand in an economy outpaces aggregate supply, leading to inflation and a potential overheating of the economy.

Federal Budget Deficit

A federal budget deficit occurs when a government's expenditures exceed its revenues within a given fiscal year, leading to the need for borrowing.

Fiscal Policy Measures

Actions by the government that include implementing taxes and allocating funds to impact economic conditions.

Inflationary Gap

The difference between the actual level of GDP and the potential GDP under full employment, indicating excess demand in the economy.