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At January 1, Year 1, Edwards Company issued 10,000 stock options permitting employees to buy 10,000 shares of stock for $50 per share.

At January 1, Year 1, Edwards Company issued 10,000 stock options permitting employees to buy 10,000 shares of stock for $50 per share. The vesting schedule (graded-vesting) and value of the options that vest over the 3-year period is estimated at January 1, Year 1, as set forth in the following table.

 

Vesting Date Amount Vesting  Fair Value per Option

Dec. 31, Year 1  10%  $2 

Dec. 31, Year 2  30%  $3 

Dec. 31, Year 3  60%  $4 

 

What is the compensation cost for Year 1 relating to these stock options? (Do not use the straight-line method.)

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