Question

If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation.

A. True
B. False

Answer 1

A) True

Step-by-step explanation:

E.g. a company decides to hand out $50,000 worth in stocks to four employees. Previous experience shows that one out of every four employees will leave the company before the vesting period is over, then the journal record should be:

Dr Stock option compensation expense 37,500

Cr APIC – Stock options 37,500