Asked by courtney mitchell on Jul 15, 2024
Verified
Under the fair value method, if an executive does not exercise a stock option and it is allowed to lapse, Common Stock Option Warrants is debited.What is credited?
A) Additional Paid-In Capital from Expired Stock Options
B) Compensation Expense
C) Gain from Expired Stock Options
D) Deferred Compensation
Common Stock Option Warrants
Instruments that give the holder the right to purchase a company's common stock at a specified price before a certain expiry date, often attached to bonds or preferred stock.
Additional Paid-in Capital
The amount of capital from the issuance of shares that is more than the par value of the shares, reflecting the excess paid by investors above the nominal value.
Deferred Compensation
A portion of an employee's income that is paid out at a later date, often used as a retirement benefit.
- Acquire knowledge on the treatment in accounting and consequences on financial reports for stock splits and stock options, including both compensatory and noncompensatory.
Verified Answer
HD
Honey DhullJul 21, 2024
Final Answer :
A
Explanation :
Under the fair value method, if an executive does not exercise a stock option and it is allowed to lapse, Common Stock Option Warrants is debited and Additional Paid-In Capital from Expired Stock Options is credited. This is because the fair value at the grant date was recognized as a component of equity and is recorded in Additional Paid-In Capital. When the option expires, the fair value is removed from equity and transferred to Common Stock Option Warrants.
Learning Objectives
- Acquire knowledge on the treatment in accounting and consequences on financial reports for stock splits and stock options, including both compensatory and noncompensatory.