Reference no: EM132613494

Questions -

Q1. Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2018, 23 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date-$9 per share. Options vest on January 1, 2022. They cannot be exercised before that date and will expire on December 31, 2024. The fair value of the 23 million options, estimated by an appropriate option pricing model, is $48 per option. Ignore income tax.

Find the Wilson's compensation expense in 2018 for these stock options?

a. $0.

b. $1,104 million.

c. $276 million.

d. $552 million.

Q2. On January 1, 2018, G Corp. granted stock options to key employees for the purchase of 90,000 shares of the company's common stock at $21 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2020, by the grantees still in the employ of the company. No options were terminated during 2018, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $27 per share at the date of the grant. G Corp. used the Binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2018?

a. $432,000.

b. $864,000.

c. $450,000.

d. $900,000.

Q3. Lundholm Company purchased a machine for $103,200 on January 1, 2016. Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value. Due to a change in sales patterns, on January 1, 2018, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2018? The tax rate is 30%. (Do not round your intermediate calculation.)

a. $20,640.

b. $19,264.

c. $27,520.

d. $18,576.

Q4. Red Corp. constructed a machine at a total cost of $76 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 11-year life using the straight-line method. The residual value is expected to be $5 million. At the beginning of 2018, Red decided to change to the sum-of-the-years'-digits method. Ignoring income taxes, what will be Red's depreciation expense for 2018? (Do not round intermediate calculations. Round final answer to 2 decimal places.)

a. $11.47 million.

b. $5.11 million.

c. $5.74 million.

d. $6.45 million.