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Acct 3021-Chapter 16 August 30, 2011 1) Stock compensation plans: Arrangements, where selected employees are given the option to purchase common stock in the company at a given price over an extended period of time. a. The fair value method is used to record compensation expense based on the fair value of the stock options expected to vest at the grant using an acceptable option pricing model (such as the Black-Scholes model). (1) Vesting occurs on the date the employee’s right to receive or retain the shares is no longer contingent on remaining in the service of the employer. (2) Stock options issued to non-employees for goods or services are also recognized using this method. 2. (L.O. 4) Accounting for stock compensation: a. Allocating Compensation Expense: recognized over the service period (the time between the grant date and the vesting date). (1) On Date of grant: no journal entry required. (2) Compute total compensation expense using an acceptable fair value option-pricing model. (3) Allocate amount of compensation expense evenly over the service period. (a) Dr. Compensation Expense Cr. Paid in Capital—Stock Options b. Recording the exercise of options: (1) Dr. Cash Dr. Paid in Capital—Stock Options Cr. Common Stock Cr. Paid in Capital in Excess of Par c. Recording the expiration of options: no adjustment is made to Compensation Expense
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(1) Dr. Paid in Capital—Stock Options
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