On January 1, 2009, D Corp

question 40

Multiple Choice

On January 1, 2009, 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, 2010, after the employee completed two years of service. The option was exercised on January 10, 2011. The market prices of D's stock were as follows: January 1, 2009, $30; December 31, 2010, $50; and January 10, 2011, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2009, D should recognize compensation expense of:

• A)$ 0.
• B)$24,000.
• C)$30,000.
• D)$90,000.The total compensation is $48,000, the option model price of $8 each times the number of options, 6,000.Since the service period is two years, the compensation expense for 2009 is $24,000 ($48,000/2 years).

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Definitions:

Performance Accurately

The precise and correct execution or accomplishment of a task or duty as required.

Expectancy Theory

A motivation theory stating that an individual's willingness to exert effort is a function of the expected outcome of the effort, the value of that outcome, and the perceived likelihood that the effort will lead to the expected outcome.

Work Effort

The amount of physical or mental energy expended towards the achievement of a task or goal.

Reward Outcomes

The benefits or compensations received as a result of completing a task or achieving a goal, which can be intrinsic (personal satisfaction) or extrinsic (material incentives).