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XYZ Co. offered an incentive stock option plan to its employees. On January 1, 2022, options were granted for eighty-seven thousand $1 par common shares. The exercise price equals the $3 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2021, and expire December 31, 2026. Each option has a fair value of $1 based on an option pricing model. Which is the correct entry to record compensation expense for the year 2022

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Answer:

Dr Compensation expense 29,000

Cr Paid-in capital - stock options 29,000

Explanation:

Compensation expenses can be defined as the expenses that include the costs of recruiting salaries, payroll taxes, benefits as well as bonuses because this expense is often an important aspect of a business, company's or organization operating costs which may tend to affects corporate profitability.

XYZ Co.

Dr Compensation expense 29,000

Cr Paid-in capital - stock options 29,000

(87,000 x $1)/3 = 29,000

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