Asked by Madison Forte on Jul 02, 2024
Verified
Which one of the following statements is not true with regard to employee compensatory stock option plans?
A) When a stock option is exercised under a compensatory stock option plan, the newly issued common stock is recorded at the exercise price and the value of the options at the grant date.
B) When stock warrants are issued under a noncompensatory stock option plan, no formal journal entry is required to record the stock warrants.
C) When a stock option is exercised under a compensatory stock option plan, the newly issued common stock is recorded at the exercise price and the previously recorded value of the warrants.
D) For federal income tax purposes, any gains resulting from stock options earned by employees are taxed at ordinary income tax rates.
Compensatory Stock Option Plan
A plan offered by a company to its employees as a form of compensation, which grants them the option to buy the company’s stock at a predetermined price.
Exercise Price
The price at which an option holder can buy (call option) or sell (put option) the underlying security or commodity.
Stock Warrants
Securities that give the holder the right to purchase a company's stock at a specified price before a certain date.
- Comprehend the financial reporting implications and accounting methods for stock splits and stock options, covering both compensatory and noncompensatory variations.
Verified Answer
WZ
WENXUAN ZHANG6 days ago
Final Answer :
A
Explanation :
Option A is not true because when a stock option is exercised under a compensatory stock option plan, the newly issued common stock is typically recorded at the exercise price, but the value of the options at the grant date is not part of this journal entry. Instead, the value of the options granted is recognized as an expense over the vesting period.
Learning Objectives
- Comprehend the financial reporting implications and accounting methods for stock splits and stock options, covering both compensatory and noncompensatory variations.