Red Company Is a Calendar-Year U

question 7

Multiple Choice

Red Company is a calendar-year U.S. firm with operations in several countries. At January 1, 2018, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $25. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting) . The fair value of the options is estimated as follows: What is the compensation expense related to the options to be recorded in 2019?

• A) $48,000.
• B) $96,000.
• C) $128,000.
• D) $140,000.

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Definitions:

Price Floor

A government- or authority-imposed minimum price that can be charged for a good or service to prevent prices from dropping too low.

Equilibrium Price

The price at which the quantity of a good or service demanded by buyers equals the quantity supplied by sellers.

Rationing Mechanism

A system designed to allocate goods or services among interested users, often used when demand exceeds supply.

Discrimination

The unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex.