Reference no: EM132619420

Question - In order to retain certain key executives, Smiley Corporation granted them incentive stock options on March 31, 20X7. 800,000 options were granted at an option price of $35 per share. Market prices of the stock were $46 at December 31, 20X8 and $51 at December 31, 20X9. The options were granted as compensation for executives' services to be rendered over a two-year period beginning April 1, 20X7. The Black-Scholes option pricing model determines option fair value to be $10 per option. When the options were exercised the stock price was $52 and they used treasury stock that had been acquired at $8 when issuing the shares. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 20X8 under the straight line method?

a. $800,000

b. $4,000,000

c. None of the these

d. $3,200,000

e. $0