- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 11. Employee Compensation: Post-Employment and Share-Based
- Subject 5. Accounting for Stock-Based Compensation
CFA Practice Question
Which statement(s) is (are) true when options are exercised and the market price is higher than the exercise price?
II. Compensation expense should be credited.
III. The exercise results a tax liability for the employee.
IV. The exercise results a tax benefit for the company.
I. Compensation expense should be debited.
II. Compensation expense should be credited.
III. The exercise results a tax liability for the employee.
IV. The exercise results a tax benefit for the company.
Correct Answer: III and IV
User Contributed Comments 2
| User | Comment |
|---|---|
| quanttrader | compensation expense should be debited once the option is granted |
| davidt876 | and it's a tax liability for the employee because the difference in exercise price and market value is treated as compensation and is therefore taxable |