Under the fair value method, if an executive does not exercise a stock option and it is allowed to lapse, Paid-in Captial Share Options is debited. What is credited?
A) Additional Paid-In Capital from Expired Share Options
B) Compensation Expense
C) Gain from Expired Share Options
D) Deferred Compensation

Question

Quizplus · Accepted Answer

When a stock option is allowed to lapse, it reduces the number of outstanding options and increases the value of the remaining options. To account for this, the Paid-in Capital Share Options account is debited and the Additional Paid-In Capital from Expired Share Options account is credited. This reflects the fact that the company received money from the issuance of the options, but did not have to expend any compensation expense due to the options not being exercised. Therefore, the correct choice is A.

Under the Fair Value Method, If an Executive Does Not