Clean surplus accounting for most common stock transactions holds for shares accounted for at market value.An exception to this is:
A) issuance of common equity shares for employee stock options exercises
B) repurchase of common shares
C) issuance of common shares to new shareholders in public exchanges
D) none of these.

Question

Quizplus · Accepted Answer

Clean surplus accounting assumes that changes in equity are driven by operations and not by financing activities. Therefore, transactions such as repurchase of common shares and issuance of common shares to new shareholders in public exchanges would not affect the clean surplus. However, issuance of common equity shares for employee stock options exercises represents a financing activity that does not reflect operations and therefore violates the clean surplus principle.

Clean Surplus Accounting for Most Common Stock Transactions Holds for Shares