Learn about Reporting Stock Options: Easy Guide.

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

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.