Question #14 - Reading 9 Employee Compensation - Post-Employment and Share-Based

Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based

PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf

Page: 5

Status: Incorrect

Correct Answer: A

Your Answer: B

Shared Context

of 36 Which type of compensation is most likely to increase current liability for a company? A) Stock-option grants. B) Stock grants. C) Salary and wages. Prisma Inc. started an employee stock option and RSU grant plan. On Jan 1, 20X1, the company made a grant of 150,000 at-the-money options (maturing in five years) and 25,000 shares. The fair value of the options was $1.79 and the stock price on the date of the grant was $16. Both awards vest after 3 years. The average stock price during the year was $17 and it was $17.50 at the end of the year.

Question

The expense reported for 20X1 is closest to:

Answer Choices:

A. $187,033

B. $222,833

C. $133,333

Explanation

Value of the options on grant date = 1.79 x 150,000 = $268,500 Value of stock grant = 16 x 25,000 = $400,000 Both are amortized straight line over the 3-year vesting period. Expense = (268,500+400,000) / 3 = $222,833 per year

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