Which of the Following Was True About Employee Stock Options

question 8

Multiple Choice

Which of the following was true about employee stock options prior to 1995?

• A) The options never had any affect on a company's financial statements
• B) The value of options which were at-the-money when issued had to be expensed on the income statement
• C) The value of options which were at-the-money when issued had to be reported in the notes to the financial statements
• D) Options which were at-the-money when issued did not affect a company's financial statements

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead necessary to convert raw materials into finished goods.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory value based on the average cost of all units available for sale during the period.

Materials Cost

The cost of the raw materials used in the production of goods.

Weighted-Average Method

An inventory costing method where costs of goods sold and ending inventory consist of a weighted average of all purchases and manufactured goods during the period.