Question #5
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: A
Question
Which of the following statements about share-based compensation is most accurate?
Answer Choices:
A. The fair value of an option is expensed when the option is in-the-money
B. Only the intrinsic value of an option is shown as an expense in the income statement
C. The compensation expense is amortized over the vesting period in the income statement
Explanation
Compensation expense is based on the fair value of the options on the grant date. The
compensation expense is then allocated straight line (i.e., amortized in equal installments)
in the income statement over the vesting period, which is the time between the grant date
and the vesting date.