issuing options - effect on Debt to Equity...where my CPAs AT?????

why would issuance of new shares under stock awards have no impact on debt to equity!

The value of equity doesn’t change - you dilute the value of existing shares when you issue shares. :slight_smile:

why don’t you dilute when issuing options???

i don’t understand the explanation: RE is decreased by option expense and Paid in Capital increased by the same amount.



You could use a little dilution in your caffeine intake tbh.



You use Retained Earnings to purchase the shares and then they’re sent into Paid-In Capital. It’s probably some time of Debit on RE and a Credit to Paid-In Capital to make it balance.

Not too sure, but I think that would work

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I believe this is correct as well. The share compensation is taken out of R/E (DR) and moved into the common stock accounts (CR).

With options, the firm issues the equity and receives money for it when the options are exercised.

A helpful way to approach ratios is to think in terms of the equation A = L + E

If you issue new shares under a compensation program, do your assets increase? No. Do your liabilities increase? No. If neither assets nor liabilities change, their your E must remain the same. You don’t need to get bogged down in PIC and RE for purposes of Level II.