Stock Option Compensation Expense Calculation: Fair Value Method Example

To calculate the compensation expense for 2018, we need to determine the fair value of the option at the grant date and allocate it over the service period.

The fair value of the option can be determined using a fair value option pricing model. In this case, the total compensation expense is determined to be $37,800.

The service period is for three years beginning on January 1, 2018. Since Telfer exercised his option on September 1, 2018, and sold the shares on December 1, 2018, the portion of the service period that falls within 2018 is 9 months.

To calculate the compensation expense for 2018, we multiply the total compensation expense by the portion of the service period that falls within the year:

Compensation expense for 2018 = Total compensation expense * Portion of service period = $37,800 * (9/12) = $28,350

Therefore, Coronado should recognize compensation expense for 2018 on its books in the amount of $28,350. The correct answer is not provided in the given options, and none of the options match the calculated amount.