Pastore Inc. granted options for 1 million shares of its $1 par common stock at
ID: 2485553 • Letter: P
Question
Pastore Inc. granted options for 1 million shares of its $1 par common stock at the beginning of the current year. The exercise price is $31 per share, which was also the market value of the stock on the grant date. The fair value of the options was estimated at $7.00 per option.
A credit of $11.7 million.
A credit of $4.2 million.
A debit of $4.2 million.
A debit of $11.7 million.
Pastore Inc. granted options for 1 million shares of its $1 par common stock at the beginning of the current year. The exercise price is $31 per share, which was also the market value of the stock on the grant date. The fair value of the options was estimated at $7.00 per option.
Explanation / Answer
Answer : B) A credit of $4.2 million.
Credit is determined as follows :
= No. of shares granted * Fair value per option * No. of years since options granted / No. of years till vesting.
= 1,000,000 * 7 * 3 / 5 = $4.2 million.