Slide09 - lide 1 Your Opinion ; A Recruiting Contract...

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lide 1 Your Opinion ; A Recruiting Contract Contract : The company signed on the recruiting contract with John to start working for the company from the next month at annual salary of $50,000 Question : Is the company supposed to record any expense for signing on the above contract?
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lide 2 Your Opinion ; A Contract for Future Gain-sharing Contract : The company will pay 5% of future stock price increase to the employee. (no payment if stock price goes down) Question 1 : Why may the company offer such a contract to employees? Question 2 : Is the company supposed to record any expense for signing on the above contract?
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lide 3 Employee Stock Options the right to buy stocks at a certain price Terminology Stock Options the right to buy common stock at a given price over a specified period of time. In most cases, ESOP’s are non- transferable Grant Date the date on which the options are granted to the employees Exercise Price the price that the employees must pay to buy the shares, usually same as current market price Vesting Period the time period until employees are able to actually exercise options Expiration Date When the right expires
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lide 4 Employee Stock Option Plan Typical ESOP : Exercise price : same as current market price at grant date, Vesting period : 4 years Expiration Date : in 10 years
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lide 5 Users’ Perspective Is it expense to the company ? Is it a liability at point of issuance ? What is the benefit to the company from the ESOP ? How the benefit can be matched to the expense ? Question : When the company grants ESOP’s… ESOP = “Hidden” Expense and Liabilities ???
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lide 6 Statement of Financial Accounting Standards (SFAS) # 123 The Fair Value method Recognize expense (fair value of option granted, based on Black-Scholes method or etc.) in the I/S over the vesting period And report details of option information at Footnote
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lide 7 Accounting Records under the Fair Value Method At the point of option grant At the point of option grant The company granted 100 stock options at 1/1/03 exercise price of $ 50, which is same as current stock price exercisable after two years, and expires in ten years. Assume theoretical fair value of option = $18 per option
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Slide09 - lide 1 Your Opinion ; A Recruiting Contract...

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