Question #4
Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based
PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf
Page: 2
Status: Correct
Correct Answer: B
Question
Which of the following statements about the methods of valuing employee stock options is least accurate?
Answer Choices:
A. Compensation expense is allocated in the income statement for the period between the grant date and the vesting date
B. Once the options are in-the-money, compensation expense is recognized on the income statement
C. The offset to compensation expense recognized is an increase in share-based compensation reserve
Explanation
Compensation expense is based on the fair value of the option on the grant date. The
vesting date is the first date the employee can actually exercise the option. The
compensation is allocated in the income statement over the service period (which is the
time between the grant date and the vesting date).
For any compensation expense recognized, the offset is share-based compensation
reserve, which is a stockholders' equity account.