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Basic Question 11 of 14
Generally, the impact of stock options is:
II. Stock options are almost never exercised by employees.
III. The cost of stock options is recorded as an extraordinary item.
IV. Dilution of equity, but no compensation expense recorded when exercised.
I. Employees pay cash directly to the company for these options when exercised.
II. Stock options are almost never exercised by employees.
III. The cost of stock options is recorded as an extraordinary item.
IV. Dilution of equity, but no compensation expense recorded when exercised.
User Contributed Comments 7
| User | Comment |
|---|---|
| PASS0808 | Why not IV? Option expensed fully usually by the time when the vesting period ends. |
| ehc0791 | When employee exercises options, company records compensation expense. IV said no record. |
| clin341 | ehc0791, I think it's when the employee is issued the option then the company records compensation expense. |
| bodduna | clin341, I think you are right, compensation expense recorded when stock option is granted if it vested immediatly or vested over a period. |
| ericczhang | I don't think dilution occurs if the company buys shares on the open market to fill the option exercises. |
| birdperson | i think @ericczhang has it |
| davidt876 | agreed. so it doesn't have to dilute equity but it can (if the company issues shares to satisfy the option requirement) |
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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.