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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.

See Also This Related BrainMass Solution

GAAP question

Following is a link to an article discussing the accounting rules related to stock options including SFAS 148 which is the most recent standard that applies to valuing stock options.

Is the intrinsic value method is still an allowable method for valuing stock options under GAAP?


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