Question

Learning Team: Accounting for Employee Stock Options

MY PART IS IN BOLD BELOW

Discuss with your team the following case study:

Client X offers a generous employee compensation package that includes employee stock options. The exercise price has always been equal to the market price of the stock at the date of grant. The corporate controller, John Jones, believes that employee stock options, like all obligations to issue the corporation's own stock, are equity. The new staff accountant, Marcy Means, disagrees. Marcy argues that when a company issues stock for less than current value, the value of preexisting stockholders' shares is diluted.

Pretend you are hired to debate the issue of the proper treatment of options written on a company's own stock.

Write a team paper response of 550 to 700 words in which you address the following requirements:

Describe how Client X should account for its employee stock option plan under existing GAAP. (MY PART)

Write a summary of your argument, citing concepts and definitions to buttress your case, assuming:

You are siding with John.

You are siding with Marcy.

Format your submission consistent with APA guidelines.

Answer 1

JOHN TO MARCY - Could you please explain me the concept of employee stock options??

Marcy - yes ofcourse, employee stock options are granted to the employees of the company where right is given to the employee to buy certain shares over a period of time(which is specifically known as vesting period) at a predetermined price.

JOHN - Great I find this options as a incentive for the employees of the comapny as they derive good benefits from it.

MARCY- but you know these options dilute the value of current stockholders as the number of outstanding shares increases then the net income for the period gets divided by total outstanding shares and hence the earning per share of each stockholder decreases.

JOHN - Thank you Marcy for this useful information.