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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Raymond Duray who wrote (6518)	7/5/2002 12:06:33 PM
From: Enigma	Read Replies (1) of 33421

Options let's make a start? An option is granted on 100,000 shares at $12/share (the strike price) for 3 years. At the date of grant the MV is $10. In three years the option expires and is not exercised because the stock has not risen above the strike price. Therefore there is no accounting entry - yet an option was granted. What would WB have the company do here? Lets say the stock rose to $14 and the employee exercised - he would give the company a cheque for $1.2 million. The accounting entry would be debit cash and credit share capital. This is a balance sheet transaction and doesn't affect the P.& L. account. The employee received a benefit of $200,000 when the option was exercised = 100,000 X $2/share. So maybe 'salaries and benefits' has to be debited with $200,000 (i.e P.and L.) reflecting the benefit and something has to be credited - but what? This is where I get stuck. It has to be somewhere in the Balance Sheet - but I can't see the company carrying such an item and it making any sense at all. This is the question IMO - but I'm probably missing something obvious. Or it maybe an idea which sounds good in theory but which can't be applied in practice?

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