On January 1, Year 1, Freeman Corporation granted stock options to key employees which allowed these employees to purchase 90,000 shares of the corporation’s common stock at $30 per share. These options are intended to compensate employees for the next three years. The options may be exercised within a four-year period beginning January 1, Year 4, by the grantees still employed by the company. No options were terminated during Year 1, but Freeman does have an experience of 5% forfeitures over the life of the stock options. The market price of the stock was $35 per share at the date of grant. Freeman used an appropriate pricing model and estimated the value oh an option at $15. What amount should be charged to compensation expense for the year ended December 31, Year 1?
Explanation: C) (90,000 × $15) = $1,350,000 × 95% /3 = $427,500