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On January 1, 2016, Watchtower Corporation granted Emma Freegross, its president, a compensatory stock option plan...

On January 1, 2016, Watchtower Corporation granted Emma Freegross, its president, a compensatory stock option plan to purchase 8,000 shares of Watchtower's $10 par common stock. The option price is $25 per share and the option has a fair value of $7 per option. The option is exercisable on January 1, 2020, after four years of service. How much compensation expense should Watchtower recognize on December 31, 2016.

56,000

14,000

80,000

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Answer #1
Answer: 14000
The option is exercisable after 4 years, thus the compensation
expense recognised on Dec 31, 2016 would be quarter of
fair value of total option plan, so (8000*$7)/4 = $14000.
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