At January 1, Year 1, Edwards Company issued 10,000 stock options permitting emp

Question

At January 1, Year 1, Edwards Company issued 10,000 stock options permitting employees to buy 10,000 shares of stock for $50 per share. The vesting schedule (graded-vesting) and value of the options that vest over the 3-year period is estimated at January 1, Year 1, as set forth in the following table.

What is the compensation cost for Year 1 relating to these stock options?

Vesting Date Amount Vesting Fair Value per Option Dec. 31, Year 1 10 % $ 2 Dec. 31, Year 2 30 % $ 3 Dec. 31, Year 3 60 % $ 4

Explanation / Answer

Answer

The compensation cost for Year 1 relating to these stock options:

compensation cost for Year 1 = 35000/3 =$11667

Year Shares % Proportion Rate $ Value 1 10000 10 1000 2 2000 2 10000 30 3000 3 9000 3 10000 60 6000 4 24000 Total 35000

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