If a corporation grants a stock option to an employee on July 1, 2010 , that allows the employee to purchase stock at a price substantially below the stock's fair value at July 1, 2010 , an element of compensation expense should be recorded on the corporation's books.

Question

Quizplus · Accepted Answer

This is because the stock option is considered a form of compensation for the employee, and the difference between the option price and the fair value of the stock is considered an expense for the corporation. This expense should be recognized and recorded on the corporation's books.

If a Corporation Grants a Stock Option to an Employee