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Unformatted text preview: shares has a double effect on a company’s leverage. The
borrowing, of course, increases the companies liabilities, while the Treasury Stock accounting decreases
the company’s equity levels. Both treatments (+L, SE) increase a
Reissuing Treasury Stock is considered to be a capital transaction and, as such, does not
a company’s income statement and its level of profitability. affect ID12–13
a. Stockbased compensation expense is the expense related to the granting (and subsequent exercise) of
stock options to employees. If an employee is given the option to purchase shares of company stock
from the company, the cost of those shares to the company has to be included as a form of compensation
expense, just as cash paid to an employee for services rendered is considered compensation expense.
The calculation of the actual cost of the shares to the company is still subject of much debate and
controversy, but the fact that options are a form of compensation is generally accepted. b. As the shares are issued (or re...
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