USA Accounting for employee stock options


Joined
Apr 19, 2019
Messages
2
Reaction score
0
Country
United States
Im having trouble understanding the journal entry for exercising stock options. In my book they give an example of 10million options with fair value of $8.00 with a vesting period of 4 years. At the end of the fourth year half of the options are exercised with a market value of $35 a share. The journal entry is:
(debit)cash(35 * 5m) 175
(debit)Paid in capital-stock options 40
(credit)Common stock 5
(credit)Paid in capital-excess of par 210
Why would they debit cash for 175? Did they sell 5m shares in the market, who did they sell the shares to? Wouldn't the company be responsible for the gain on the option(lose cash)? From my understanding the strike price is what the employee can buy the stock at. If the strike price was for example 20$, they should only receive 20*5m = 100m and be responsible to pay the 75m difference.
Just like in the market, isn't the company the seller of the option?
 
Ad

Advertisements

Joined
Apr 19, 2019
Messages
2
Reaction score
0
Country
United States
oh, just realized the 35$ market price was the value of the option, not the stock which was $50. Makes a lot more sense now.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads

Employee Stock Options 1
Employee Stock Options 1
Employee Stock Options 0
Employee Stock Options 0
Employee Stock Options 8
Employee Stock Option 0
Employee stock options 1
Employee Stock Option 2

Top