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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (260)	8/26/2002 12:43:16 AM
From: Exacctnt	Respond to of 786

"Illustration 1 - Fixed Stock Option" debits "Compensation Expense" and credits "Additional paid-in capital - stock options". I assume the former ends up in the Income Statement, the latter in the Balance Statement. The credit makes it appear that FASB considers the option grant a financing activity. Do you agree? I am assuming that your terms operational and financing activities are tied into cash flow categories. If a company decides to expense options and considers that expense as compensation cost, then I would say that it is an operational activity. Don't be confused by the offset going to a balance sheet account, since the offsets to all revenue and expenses are balance sheet accounts. The financing part of stock option accounting occurs when stock is issued for cash from the employee. FAS 123 continues: "To recognize compensation cost" debit "Deferred tax asset" and credit "Deferred tax expense". Would you please provide your accounting definition of "recognize"? Something to do with taxes? I am not sure what this statement means without the full context. Of all the accounts on the balance sheet, Deferred Taxes are the most complex. The profitability of a company comes into play as well as a timing issue from when expenses/income is recorded vs. actual payment or collection. As far as an example of a company that does not expense options and is profitable, MSFT recognizes its tax benefit from options during the period when they are exercised. Their entry to record the benefit is a debit to Taxes Payable(reduction to a liability) and a credit to Additional Paid in Capital. You need to understand also that MSFT does not reduce its Income Tax Expense account by the the tax benefit when it is reported on the income statement. A unprofitable company may not be able to take its credit and may defer it into the future.