Reference no: EM132531319
Question 1. Many shares and most share options are not traded in an active market. Therefore, it is often difficult to arrive at a fair value of the equity instruments being issued. Which of the following option valuation techniques should not be used as a measure of fair value in the first instance?
a. Black-Scholes model.
b. Binomial model.
c. Monte-Carlo model.
d. Intrinsic value.
Question 2. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its 1,000 employees in January 20X4. The management feels that as of December 31, 20X4, 90% of the awards will vest on December 31, 20X6. The fair value of each share appreciation right on December 31, 20X4, is P10. What is the fair value of the liability to be recorded in the financial statements for the year ended December 31, 20X4?
a. P300,000
b. P10 million
c. P100,000
d. P90,000
e. P110,000
Question 3. On January 1, 2008, ABC Company offered its chief executive officer, stock appreciation rights with the following terms:
Predetermined price ?100 per share
Number of shares 10,000 shares
Service period-3 years 2008, 2009 and 2010
Exercise date December 31, 2010
The stock appreciation rights are exercised on December 31, 2010. The quoted price of the ABC stock is as follows: ?118 on December 31, 2008, ?112 on December 31, 2009 and ?124 on December 31, 2010. ABC Company should record 2010 compensation expense at
a. 160,000
b. 60,000
c. 80,000
d. 20,000
e. 30,000
Question 4. On January 1, 2006, Pencil Company granted Mr. Mongol Staedtler Rotring, its president, 5,000 stock appreciation rights for future services to be rendered. The rights are exercisable and expire three years thereafter beginning December 31, 2007. On exercise, Rotring is entitled to receive cash for the excess of the market value of the stock on the exercise date over the market value on the grant date. Rotring exercised all of the rights on December 31, 2007. The per share market prices of Pencil's stock were as follows:
January 1, 2006 ?25
December 31, 2006 30
December 31, 2007 40
As a result of the stock rights, how much should Pencil recognize as compensation expense in 2007?
a. 62,500
b. 66,200
c. 68,500
d. 73,500
e. 73,200