Reporting Stock Options
The majority of corporations whose shares are publicly traded issue
stock options Rights to purchase common stock at a fixed price over a specified period of time.,
which are rights to purchase common stock at a fixed price over a
specified period. As the stock’s price rises, the option’s value
increases.
Starbucks and
Home Depot
offer stock options to both full- and part-time employees. Stock
options are said to motivate managers and employees to (1) focus on
company performance, (2) take a long-run perspective, and (3) remain
with the company. A stock option is like having an investment with no
risk (“a carrot with no stick”).
| EXHIBIT 13.16 | Statement of Stockholders’ Equity Apple |
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To
illustrate, Quantum grants each of its employees the option to purchase
100 shares of its $1 par value common stock at its current market price
of $50 per share anytime within the next 10 years. If the stock price
rises to $70 per share, an employee can exercise the option at a gain of
$20 per share (acquire a $70 stock at the $50 option price). With 100
shares, a single employee would have a total gain of $2,000, computed as
$20 × 100 shares. Companies report the cost of stock options in the
income statement. Measurement of this cost is explained in advanced
courses.
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