Reference no: EM132536475

Question - On January 1, 2017, a company granted 120,000 stock options to the senior management team. These employees would eventually (i.e., following the vesting period) be able to exercise their options to purchase 120,000 shares of the company's common stock at $30 per share. These stock options have a three-year vesting period, and the options can then be exercised during a two-year period beginning January 1, 2020. The company estimates a 5% forfeiture rate, which it uses to estimate compensation expense. The market price of the stock was $30 per share at the date of grant. Using the Black-Scholes option pricing model, the company estimated the grant date fair value of each option to be $20. What amount should be charged to compensation expense during Year 2 of the vesting period (i.e., during 2018)?

A. $760,000.

B. $800,000.

C. $1,200,000.

D. $1,140,000.

E. $0.