Question

Part 2: Standard Setting for Stock Options Tapes 'n Tapes Inc. grants a stock option to its CEO on January 1, 2018 as part of her The option gives the CEO the right to buy 1 share of stock for $10. The option is subject to a 2-year vesting period. It can then be exercised at the CEO's discretion) at any time during the 5 years that follow the vesting period. Put yourself in the position of an accounting standard setter and answer the following questions for each of the independent scenarios given below: 0 First, should Tapes 'n Tapes be required to record an expense for the stock option compensation? Why or why not? In answering this question, you might consider how expenses are defined in GAAP's conceptual framework. 0 Second, if you think recording an expense is appropriate, how much do you think that expense should be and in which year(s) should it be recognized? (Alternatively, if your er requires additional information to calculate. describe what that information would be.) Scenarios: a) The market price of Tapes 'n Tapes stock was $15 on January 1, 2018. b) The market price of Tapes 'n Tapes stock was $10 on January 1, 2018.

Answer 1

Page: lapes 'n' Tapes should second plon compensation as it is ey the company to cita CEO the expense for the & a benefit which is provided and house as per GAAP it should be decouded. Scenarios a. The market rios a. The market price of stock was $15 on Jan 1, 2018 suming the market price of the option is its fair Value he expense will de appropriated & into its vesting period Therefare for the year 2018 - 19 B 6 $7.5 will le recorded las an expense. Scmanio b. The market price of stock was $ 10 on Jan 1, 2018, | Assuming the market price of the option is its fair value, The expense which will the recorded in the year 2018-19 will he $5,942