[ssaetern]

Is stock option expense an operating or financing activity? Thanks.

[Recked]

Going to guess financing, but not 100% on that.

[timmyj]

It's a compensation expense so I would say it's operating.

[ssaetern]

@TimmyJ I think you’re right but what about when options are exercised? Is it still operating?

[AndreA]

Good question, I would think it’s an operating and I would add that amount to Net Income

Original journal entry. (no cash involves)
Dr: Compensation expense
Cr: APIC-stock option

When you exercised stock option
I would treat that as a financing
Dr: Cash
Dr: APIC-stock option
Cr: CS at par
Cr: APIC-CS

[Nbmorty]

If i to face such question i would divide the compensation exp. And the proceeds from the exercise into CFO CFF
respectively.
Btw. Becker's academic support won't anwer such hypothetical (out of the testbank) questions, and even if they do it would be a vague response, i have straggled with that too.
Once i had asked about IFRS irrevocable election to recognize equity securities in oci, Peter Olinto said while lecturing its like available for sale GAAP debt bonds, while the book explicitly states that all g/l stays in oci and wouldn't be reclassified into p/l, when i contacted support to clarify the response came back just to pet me for such a good question, and that they will ask the instructor to make sure! And come back to me.
Been waiting for that response for a month now!
Point is, we are paying such stupendous fees for all these materials questions like that should be explained in the material not on the web. I guess its a part of the su*ky journey.

[Adam]

Operating but doubtful you will ever encounter needing to know this.

Stock options when granted would be accrued as a liability for accrued compensation/benefits, and then when vested would be relived through a payroll expense over time, or if they don't vest and are worthless or an employee leaves before vesting is over, they would be relieved with a contra account to simply remove the liability and offset on the Balance sheet.

I dont deal with that sort of stuff, but that generally would be how it works, I believe.

[Adam]

Exercising an option, has nothing to do with the accounting as the stock is already available to issue from the corporation before, granting.

Exercising would take ownership, but generally RSU, ESPP or whatever are sold on the day they are exercised as employees pay high amount of tax on the options though payroll, and don't generally have the income to cover the tax, so unless 83-b is in place and they pay the tax on the grant day(rather then exercise) before vesting.. its a payroll issue.

[Author]

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