Talk:Stock option expensing

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Incorrect journal entry

There appears to be an issue with the journal entries for the grant date of the stock options (at least for options that don't vest immediately).

According to Intermediate Accounting 15th Edition published by Wiley, there are no entries at the grant date. Only end of the year entries are made throughout the service period.

I do not want to make this correction myself as I am not entirely sure about this. --Smartypants77 (talk) 16:36, 30 June 2015 (UTC)[reply]

Hi, I'm looking into that. Italick (talk) 17:02, 4 July 2015 (UTC)[reply]

Hi, I'm not entirely sure either. I changed it to conform more to the textbook examples that I found online. The difference between the two versions of the journal entries is in the balance sheet. Both versions would have the same effect on net income in each period. In the old version, outstanding warrants would constitute a larger portion of equity prior to the vesting date. Total equity would be the same in the old and updated versions because the old version was using a contra-equity account. Italick (talk) 18:21, 4 July 2015 (UTC)[reply]

My new version conforms with the example given on page 16-12 of Intermediate Accounting Problem Solving Survival Guide Volume 2 (14e) by Hunt, Kieso, Weygandt and Warfield:

https://books.google.com/books?id=PZzKEjmlfmsC&pg=SA16-PA13&lpg=SA16-PA13&dq=%22deferred+compensation+expense%22+%22contra+equity%22&source=bl&ots=foybL3xFVa&sig=i4l3hq-HFIcY-BeE3-7727q-Nfg&hl=en&sa=X&ei=_zaYVfD7PIHv-QHUhovoAg&ved=0CDgQ6AEwBQ#v=onepage&q&f=false

Curiously, an equity adjustment on the grant date (similar to my old entries) is prescribed when unvested restricted stock is granted to an employee as compensation. (page 16-13 of the same book) But if the award consists of options instead of restricted stock, an analogous reapportioning of owner equity on the grant date is not prescribed by the authors. Italick (talk) 20:00, 4 July 2015 (UTC)[reply]

I found this from Ernst and Young:

http://www.ey.com/publication/vwluassetsdld/financialreportingdevelopments_bb1172_sharebasedpayments_15july2014/$file/financialreportingdevelopments_bb1172_sharebasedpayments_15july2014.pdf

Part 1.6 of that very extensive book about share-based payment accounting states specifically that the grant date journal entries which were in the article before should not be used. Ernst and Young is definitely an authority on accounting for the big corporate world. Italick (talk) 00:04, 5 July 2015 (UTC)[reply]