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Stock Options and FASB

Now FASB requires that all employee stock options should be expensed on income statement. On Jan. 2005, AA company granted total $100,000 (fair value) of stock options to the employee. The exercise price is equal to the market price at the grant time. The employees cannot exercise the options until 2007. According to the new requirement, the company should record an expense $50,000 for 2005 and $50,000 for 2006. During 2008, all options are exercised. What is the effect on the total equity at the end of 2006?

A) Not determinable
B) No effect
C) Decrease
D) Increase

Solution Preview

C) Decrease

This actually never went into effect by the FASB. It is still under controversy. Under GAAP, this was overruled and ...

Solution Summary

This solution explains the effect on the total equity at the end of 2008 for AA company.

$2.19