INTERMEDIATE ACCT CONNECT ACCESS
16th Edition
ISBN: 9781264025763
Author: SPICELAND
Publisher: INTER MCG
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Chapter 19, Problem 19.2Q
To determine
Stock options: Stock options are the stock-based compensation plans provided in the form of an option to buy certain number of shares for a certain price during certain period.
To explain: The method of measuring fair value approach for stock options
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Compensatory stock option plans are a common component of employee compensation packages, allowing employees to purchase company stock at a predetermined price.
The financial accounting for such plans involves various considerations. Let's examine a set of statements related to compensatory stock option plans and identify which
statement does not accurately reflect the financial accounting principles associated with these plans.
Question:
Which of the following statements regarding the financial accounting for compensatory stock option plans is not accurate?
Multiple Choice
A) Stock options' fair value is recognized as compensation expense over the vesting period.
B) The common stock issued upon the exercise of stock options is recorded at its fair market value.
C) Changes in the market value of stock options during the vesting period do not impact the recorded compensation expense.
D) The par value of common stock issued upon the conversion of options increases total owners' equity.
A stock option plan may or may not be intended to compensate employees for their work. The compensation expense for compensatory stock option plans should be recognized in the periods the a. employees become eligible to exercise the options. b. employees perform services. c. stock is issued. d. options are granted.
Explain how “at-the-money” stock options (i.e., options that have no intrinsic value) which are part of an executive compensation package results in compensation expense.
Chapter 19 Solutions
INTERMEDIATE ACCT CONNECT ACCESS
Ch. 19 - Prob. 19.1QCh. 19 - Prob. 19.2QCh. 19 - The Tax Code differentiates between qualified...Ch. 19 - Stock option (and other share-based) plans often...Ch. 19 - What is a simple capital structure? How is EPS...Ch. 19 - Prob. 19.6QCh. 19 - Blake Distributors had 100,000 common shares...Ch. 19 - Why are preferred dividends deducted from net...Ch. 19 - Prob. 19.9QCh. 19 - The treasury stock method is used to incorporate...
Ch. 19 - The potentially dilutive effect of convertible...Ch. 19 - How is the potentially dilutive effect of...Ch. 19 - Prob. 19.13QCh. 19 - If stock options and restricted stock are...Ch. 19 - Wiseman Electronics has an agreement with certain...Ch. 19 - Prob. 19.16QCh. 19 - When the income statement includes discontinued...Ch. 19 - Prob. 19.18QCh. 19 - Prob. 19.19QCh. 19 - (Based on Appendix B) LTV Corporation grants SARs...Ch. 19 - Prob. 19.1BECh. 19 - Prob. 19.2BECh. 19 - Prob. 19.14BECh. 19 - Prob. 19.15BECh. 19 - Prob. 19.10ECh. 19 - EPS; concepts; terminology LO195 through LO1913...Ch. 19 - FASB codification research LO192 The FASB...Ch. 19 - Prob. 19.28ECh. 19 - Communication Case 1911 Dilution LO199 I thought...Ch. 19 - Prob. 19.12DMP
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- How is it possible for an employee stock option to be valuable even if the firms stock price fails to meet shareholders expectations?arrow_forwardWhich of the following is NOT true? a. If the choice is cash, a liability has to be recorded until the SARS are exercised. b. Stock options will almost always have value, whereas restricted stock may not. C. An option-pricing model is not used for valuing restricted stock. d. An executive receiving restricted stock is given the stock prior to vesting.arrow_forwardHow do you determine if a stock is over-valued? What does that mean? If a willing buyer and a willing seller agree to buy/sell a share of stock, who can say if the share is over-valued? What are some of the traditional tools to determine if a stock is over-valued or under-valued?arrow_forward
- According to IFRS, once the total compensation is measured at the date of grant A. It can be changed in future periods related to a change in market conditions B. It can be changed to reflect the rise or fall in the market price of the company's ordinary shares C. A company is permitted to adjust tge number of share options expected to the actual number of instruments vested D. All of the choices are correctarrow_forwardNoncompensatory stock option plans have all of the following characteristics except a. participation by substantially all full-time employees who meet limited employment qualifications. b. equal offers of stock to all eligible employees. c. a limited amount of time permitted to exercise the option. d. a provision related to the achievement of certain performance criteria.arrow_forwardk) define a protective put. l) demonstrate an understanding of the position of buying a protective put by identifying the breakeven stock price, the maximum profit, and the maximum loss. m) discuss the similarities between a protective put and an insurance policy. n) discuss the similarities between the exercise price in a protective put and the deductible in an insurance policy. o) demonstrate an understanding of the constructions of a synthetic put by identifying the breakeven stock price, the maximum profit, and the maximum loss.arrow_forward
- Which of the following statements concerning common stock and the investment banking process is NOT CORRECT? a. The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue. b. The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue. c. If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market. d. Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm. e. Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with…arrow_forwardThe fair value of a stock can be determined by the factors of market forces Select one: a. True b. Falsearrow_forwardAre the statemnets: both correct, both incorrect, or which one is correct?STATEMENT 1: Share options are additional compensation on the part of officers and employees. STATEMENT 2: The intrinsic value of share options is equal to carrying amount over the option price.arrow_forward
- Sl acquired shares that are not part of a held for trading portfolio. The shares are listed on a public stock exchange such that fair value information is readily available. Sl management would like to report the shares at fair value on the SFP, however, management does not want holding gains and losses to result in income volatility. How should Si management classify the shares? SI reports under IFRS. Multiple Choice FVTPL FVTOCI Amortized cost Costarrow_forward2) Which of the following statements is FALSE? A) The option buyer, also called the option holder, holds the right to exercise the option and has a long position in the contract. B) The market price of the option is also called the exercise price. C) If the payoff from exercising an option immediately is positive, the option is said to be in-the- money. D) As with other financial assets, options can be bought and sold. Standard stock options are traded on organized exchanges, while more specialized options are sold through dealers.arrow_forwardWhich of the following statement(s) is(are) TRUE? (i) The valuation price of a stock primarily depends on expected future dividends to its shareholders and its required rate of return. (ii) An investor who intends to sell a stock after holding it for a short period will forgo all future dividends, thus will be willing to pay for a lower price for the stock compared to another investor who prefers to hold the share for a longer period. (iii) The valuation share price is positively related to the share's required rate of return.arrow_forward
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