SAT case 15-1-power Point-2010

SAT case 15-1-power Point-2010 - SFASNo.123(R)December2004...

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SFAS No. 123 (R) – December 2004 Requires that companies recognize compensation expense  using the fair-value method.   Fair-value of compensation is the assumed value of the  services received.   Fair-values at date of grant (date options are received) can  be found using acceptable option-pricing models, such as  the Black-Scholes option-pricing model or the binomial  lattice model. Both models use same basic inputs: underlying stock price,  risk free rate of interest, strike price, dividend yield, volatility  of company’s stock price, and expected term of the option.     
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No entry at date of grant Total fair-value of compensation expense is  allocated evenly over the service period, or period  from which the expected benefit will occur.   Dr. Compensation Expense           XXX Cr. Paid-in Capital – Stock Options          XXX
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Stock options are obligations to issue a company’s  stock in the future SFAC No. 6 describes liabilities as obligations to transfer 
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