JKC Initiated a Stock Option Plan for Its Three Top

question 23

Multiple Choice

JKC initiated a stock option plan for its three top executives.The plan provided that each executive would receive 6,000 options that would enable each one to purchase 600 shares at the option price.The option price was set at 10 percent below market price at the first exercise date.The options could be exercised after the executives remained as employees of the company for 3 more years.The market price of the shares on the date that the options were granted was $10 per share.The amount of compensation expense the company incurred for the three executives due to the option plan was:

• A) $8,100
• B) $3,000
• C) $600
• D) $0
• E) Cannot be determined from the information provided.

---

Definitions:

Operating Department Y

A specific division within an organization that is focused on core operational tasks related to producing goods or services.

Step-Down Method

A cost-allocation method used in cost accounting to allocate costs of departments to products or services.

Administration Department

The division within an organization responsible for overseeing general operations and administrative tasks.

Facilities Department

A department within an organization responsible for the management and maintenance of buildings, grounds, and other physical infrastructures to support operational needs.