Share-Based Compensation: Expense Recognition

Hard Employee Compensation Share-based Compensation

ABC Corp. has a stock option plan for its employees that allows them to purchase shares at a predetermined price. The options are granted at the money, with an exercise price equal to the stock's current market price. The company recognizes the fair value of these stock options on the grant date using the Black-Scholes model. ABC Corp. reports a significant rise in its stock price during the fiscal year, leading to an increase in the intrinsic value of these options.

Which of the following statements regarding the impact of this share-based compensation on ABC Corp.'s financial statements is correct?

The increase in the fair value of the options will not impact ABC Corp.'s income statement until the options are exercised.

ABC Corp. must recognize the fair value of the options as an expense in the income statement over the vesting period.

The intrinsic value gained due to the rise in stock price will be recorded as a liability on the balance sheet until the options are exercised.

Hint

Submitted7.5K

Correct5.1K

% Correct68%