Share Based Payments

Question 1

164. If a stock option expires, should the compensation expense be reversed?

Answer 1

No - expiration of stock options does not cause reversal of compensation expense b/c at grant date, the firm did provide value to the employee, given that the option had a fair value at that time.

expense recognized for stock option plans is not based on the expected value of the employee services; rather, it is based on the value of what was given by the employer to the employee

Question 2

164. when valuing compensation expense for stock options, what value should be used?

Answer 2

the fair value of the option itself is used to value the compensation expense.

note - question may try and trick you by giving you the fair value of the STOCK, don’t fall for this trap!

Question 3

164. What is the service period defined as for allocation purposes in regards to stock options?

Answer 3

service period = period from grant date to vesting date (first exercisable date)

Question 4

166. How is compensation expense calc’d for stock appreciation rights?

Answer 4

(number of shares) * (ending market price - grant-date market price)