The Accounting for Employee Stock Options Does Not Involve

question 76

Multiple Choice

The accounting for employee stock options does not involve

• A)the measurement of the fair value of stock options on the date of the grant using an option-pricing model that incorporates information about the current market price, the exercise price, the expected time between grant and exercise, the expected market price volatility of the stock, the expected dividends, and the risk-free interest rate.
• B)calculating total compensation cost as the number of options the firm expects to vest times the fair value per option.
• C)factoring in the firms use of their historical experience on forfeitures due to employees terminating employment prior to vesting to estimate the expected number of options that will vest.
• D)amortizing the fair value of the stock options on the date of the grant over the requisite service period, which is the expected period of benefit.
• E)the firm recomputing the fair value of the option at each succeeding balance sheet date to reflect new information about stock prices, volatility, dividend yield, or risk-free interest rates.

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Definitions:

Offer Immediately

This term typically refers to a proposal or opportunity presented without delay.

Reasonably Definite Terms

A principle that a contract must be clear enough in its terms so that the obligations of each party can be understood and enforced.

Offer

A key factor in the agreement element of a contract; consists of the terms and conditions set by one party, the offeror, and presented to another party, the offeree.

Elements

Elements are the basic components or essential parts that make up something, such as the periodic table elements in chemistry or the parts of a legal claim.