On January 1,2018, Hugh Morris Comedy Club (HMCC) granted 1.7 million stock opti
ID: 2528786 • Letter: O
Question
On January 1,2018, Hugh Morris Comedy Club (HMCC) granted 1.7 million stock options to key executives exercisable for 1.7 million shares of the company's common stock at $30 per share. The stock options are intended as compensation for the next three years. The options are exercisable within a four-year period beginning January 1, 2021, by the executives still in the employ of the company. No options were terminated during 2018. The market price of the common stock was $35 per share at the date of the grant. HMCC estimated the fair value of the options at $6 each. 1% of the options are forfeited during 2019 due to executive turnover. What amount should HMCC record as compensation expense for the year ended December 31, 2019, assuming HMCC chooses the option to record forfeitures as they actually occur? Compensation expense 2019Explanation / Answer
Value per option $6 per stock option
No. of option granted1.7 M stocks
Total Compensation exp. 2018$10.2M
Service Period3 Years
Anticipated Exp. Per Year$3.4 M
2019 Compensation Expenses
Actual forfeiture of 1% need s to be cumulatively adjust.
Compensation Expenses 2019 = $3.4M - 1% of $3.4M
= $3.28M