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Retained Earnings - Recording an Expense

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Under the disclosure provisions of SFAS No.123, the estimated stock option expense for 2006 would be $15,500 for W Co.. When the company records this expense:

A) retained earnings account has no effect
B) the equity on b/s has no effect
C) the total assets increase by 15,500
D) the capital decreases by 15,500

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This solution explains the correct answer for W Co. under the disclosure provisions of SFAS No. 123.

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D) the capital decreases by 15,500

It decreases capital because ...

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