Common stock issued to employees through the exercise of stock purchase rights under a stock option plan that is classified as a noncompensatory share purchase plan is recorded by the corporation at the
A) market price of the stock
B) exercise price of the stock
C) market price of the stock at the first date that the stock purchase right can be exercised
D) option price of the stock plus the value assigned to the stock purchase right

Question

Quizplus · Accepted Answer

When employees exercise their stock purchase rights under a noncompensatory share purchase plan, the corporation records the common stock issued at the exercise price of the stock, which is the price specified in the option agreement. This is because a noncompensatory plan is one where the exercise price is equal to or greater than the market price of the stock at the grant date, and thus there is no compensation expense associated with the exercise of the option. The corporation does not record the market price of the stock, the market price at the first date the stock purchase right can be exercised, or the option price plus the value assigned to the stock purchase right, as those values are not relevant to the recording of the common stock issuances.

Common Stock Issued to Employees Through the Exercise of Stock