Assume common stock is issued to employees as a result of exercising stock warrants issued under a noncompensatory stock option plan.Which of the following accurately describes the effect on the company's income, paid-in capital, and retained earnings, respectively?
A)decreased, increased, and decreased
B)no effect, increased, and increased
C)decreased, increased, and no effect
D)no effect, increased, and no effect

Question

Quizplus · Accepted Answer

When employees exercise stock warrants issued under a noncompensatory stock option plan, there is usually no effect on the company's income as the exercise price is typically equal to the market price of the stock. There may be an increase in paid-in capital if the exercise price is higher than the par value of the stock, but this increase would be offset by a decrease in retained earnings. Therefore, the correct answer is option D) no effect, increased, and no effect.

Assume Common Stock Is Issued to Employees as a Result