Reporting Share-Based Compensation Expense

Hard Employee Compensation Share-based Compensation

ABC Corporation grants share-based compensation in the form of stock options to its employees. Each option allows the employee to purchase one share of ABC’s common stock at a predetermined exercise price. Employees are required to remain with the company for a three-year vesting period before the options can be exercised. ABC Corporation uses the Black-Scholes model to estimate the fair value of these options at the grant date. The company recognized total share-based compensation expense of $1.5 million in its income statement this year.

At the end of the year, ABC Corporation's share price has increased significantly, and a substantial portion of employees has opted to exercise their options. Given this scenario, how will ABC Corporation report the expense related to stock options in its financial statements?

The total expense of $1.5 million will be recognized immediately in the current year's income statement.

The expense will be recognized over the vesting period, with the total of $1.5 million being allocated evenly each year.

The expense will be recognized only when the options are exercised, at which point the total value will be reported.

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