On January 1, 2018, D Corp

question 117

Multiple Choice

On January 1, 2018, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2019, after the employee completed two years of service. The option was exercised on January 10, 2020. The market prices of D's stock were as follows: January 1, 2018, $30; December 31, 2019, $50; and January 10, 2020, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2018, D should recognize compensation expense of:

• A) $0.
• B) $24,000.
• C) $30,000.
• D) $60,000.

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Definitions:

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the extent to which sales can drop before a business incurs a loss.

Variable Expenses

Costs that fluctuate in direct proportion to changes in the level of business activity or output.

Fixed Expenses

Outlays that stay the same no matter the amount of goods produced or sold, encompassing rent, payroll, and insurance costs.

Actual Sales

The total revenue a company generates from selling its goods or services, minus any returns or refunds.