CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Generally, the impact of stock options is:

I. Employees pay cash directly to the company for these options when exercised.
II. Stock options are almost never exercised by employees.
III. The cost of stock options is recorded as an extraordinary item.
IV. Dilution of equity, but no compensation expense recorded when exercised.
Correct Answer: I only

User Contributed Comments 7

User Comment
PASS0808 Why not IV? Option expensed fully usually by the time when the vesting period ends.
ehc0791 When employee exercises options, company records compensation expense. IV said no record.
clin341 ehc0791, I think it's when the employee is issued the option then the company records compensation expense.
bodduna clin341, I think you are right, compensation expense recorded when stock option is granted if it vested immediatly or vested over a period.
ericczhang I don't think dilution occurs if the company buys shares on the open market to fill the option exercises.
birdperson i think @ericczhang has it
davidt876 agreed. so it doesn't have to dilute equity but it can (if the company issues shares to satisfy the option requirement)
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