?

On January 1, year 1, Fay Corporation established an employee
stock ownership plan (ESOP). Selected transactions
relating to the ESOP during year 1 were as follows:

• On April 1, year 1, Fay contributed $30,000 cash and
3,000 shares of its $10 par common stock to the ESOP.
On this date the market price of the stock was $18 a
share.

• On October 1, year 1, the ESOP borrowed $100,000
from Union National Bank and acquired 5,000 shares of
Fay’s common stock in the open market at $17 a share.
The note is for one year, bears interest at 10%, and is
guaranteed by Fay.

• On December 15, year 1, the ESOP distributed 6,000
shares of Fay common stock to employees of Fay in accordance
with the plan formula.

In its year 1 income statement, how much should Fay report
as compensation expense relating to the ESOP?