Accounting Treatment of Employee Stock Options

Easy Employee Compensation Share-based Compensation

As part of its employee compensation package, XYZ Corporation grants stock options to its employees. These options allow employees to purchase shares of the company's stock at a specified price for a specific period. For the year ended December 31, 2022, XYZ Corporation recognized a total of $500,000 in employee compensation expense related to these stock options.

How should XYZ Corporation treat this stock-based compensation expense in its financial statements?

The entire $500,000 should be recorded as an expense in the income statement immediately.

The $500,000 should be recorded as an expense in the income statement over the vesting period of the options.

The $500,000 should be deferred and recognized as an expense only when the options are exercised.

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