On January 1, Year 1, Katy Corp granted its employees 90,000 options for 90,000 $1 par common
Question:
On January 1, Year 1, Katy Corp granted its employees 90,000 options for 90,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $5 based on the Black-Scholes model.
At the end of the first year, it is expected that 100% of employees will exercise the options. By the end of Year 2, it is expected that only 80% of the options will be exercised. Assume that Katy chooses to adjust the fair value of the options for the estimated forfeitures.
What is the journal entry to recognize compensation expense in Year 2? (Round your final answer to the nearest dollar.)
Expert Answer:
