On January 1, 2021, EG Corporation granted 22 million options under its executive stock option plan that permit executives to purchase 22 million of the company’s $1 par common shares within the next seven years, but not before December 31, 2024 (the vesting date). The exercise price is the market price of the shares on the date of grant, $26 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated.   1. Ignoring taxes, what is the total compensation cost EG Corporation will recognize as a result of the stock options? 2. Ignoring taxes, what is the effect on EG's earnings in the year after the options are granted to executives?   total compensation effect on earnings decrease  increase no effect

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2021, EG Corporation granted 22 million options under its executive stock option plan that permit executives to purchase 22 million of the company’s $1 par common shares within the next seven years, but not before December 31, 2024 (the vesting date). The exercise price is the market price of the shares on the date of grant, $26 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated.
 
1. Ignoring taxes, what is the total compensation cost EG Corporation will recognize as a result of the stock options?
2. Ignoring taxes, what is the effect on EG's earnings in the year after the options are granted to executives?
 

total compensation

effect on earnings

decrease 

increase

no effect

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