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Basic Question 8 of 14
Which statement(s) is (are) true when options are exercised and the market price is higher than the exercise price?
II. Compensation expense should be credited.
III. The exercise results a tax liability for the employee.
IV. The exercise results a tax benefit for the company.
I. Compensation expense should be debited.
II. Compensation expense should be credited.
III. The exercise results a tax liability for the employee.
IV. The exercise results a tax benefit for the company.
User Contributed Comments 2
| User | Comment |
|---|---|
| quanttrader | compensation expense should be debited once the option is granted |
| davidt876 | and it's a tax liability for the employee because the difference in exercise price and market value is treated as compensation and is therefore taxable |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain issues associated with accounting for share-based compensation;
explain how accounting for stock grants and stock options affects financial statements, and the importance of companies' assumptions in valuing these grants and options.
CFA® 2025 Level II Curriculum, Volume 2, Module 11.