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This post addresses the recognizable amount of compensation.

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On January 1, 2010, Trent Company granted Dick Williams, an employee, an option to buy 100 shares of Trent Co. stock for $30 per share, the option excercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $900. Williams excercised his option on September 1, 2010, and sold his 100 shares on December 1, 2010. Quoted market prices of Trent Co. stock during 2010 was as follows:

January 1 $30 per share
September 1 $36 per share
December 1 $40 per share

The service period is for 2 years, beginning January 1, 2010. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2010 on its books in the amount of:

a) 1,000
b) 900
c) 450
d) 0

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Solution Summary

The solution provides the correct answer with supporting calculations to determine the amount that Trent should recognize for compensation expense on their books.

$2.19