Question

In their 2015 10-K report, eBay reported a stock option grant of 2 million options during...

  1. In their 2015 10-K report, eBay reported a stock option grant of 2 million options during the year, the per share fair-value of which was computed as $6.84. If the options have, on average, a four-year vesting period.
  1. What expense did the company report in 2015 related to this grant?

  1. What will happen to the following accounts when those options are exercised (please circle your answer):

Common stock            Increase                Decrease

Cash                          Increase                Decrease

Basic EPS                  Increase                Decrease

Business   Accounting   
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Answer #1

Ans:

Number of options : 2 Million

Fair Value per share : $6.84

Vesting period : 4 Years

a.

Amount of Expense company will report in 2015 is :

= 2,000,000 * $6.84 * 1/ 4 = $3,420,000 or $3.42 Million

b.

Change in these account after excercise of Stock Options :

Common Stock : Increase (as a result of new common stock issue)

Cash : Increase (as shares are issued at lower price, cash will increase)

Basic EPS : Decrease ( because common stock will increase as a result on new issue but net profit remains the same)

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