Mock 2 #18

What was the answer to this one (treatment of ESPPs and Performance-based rewards)?


both over vested period…don’t remember the answer choice

Skylark introduced an employee stock purchase plan (ESPP) for all employees and a performance-based plan for senior executives. Lee believes that the ESPP will affect earnings over the vesting period of the plan, but that for the performance-based plan the full effect will be recognized in the current year when it was granted. Is Lee correct with respect to the employee stock purchase plans and performance-based awards introduced by Skylark? Employee stock purchase plan Performance-based awards A. Correct Correct B. Correct Incorrect C. Incorrect Correct D. Incorrect Incorrect answer: “FAS 123® - Accounting for Stock-Based Compensation: Happy Anniversary?” Diane Doubleday, Susan Eichen, and Linda Laarman 2008 Modular Level II, Vol. 2, p. 150 Study Session 6-25-a explain the key features of stock option accounting in the United States Both ESPPs and performance-based awards require recognition of a compensation cost recognized over the requisite service period.

I am still not sure if its B, I chose B but …that aswer is not very clear… what is requisit service period…is that employment service period???

Probably. I can tell you that with stock options, a value for each vesting tranche is computed at grant. The expense associated with that tranche is recognized in the period it vests. If the employee leaves, the grant is forfeit, and the expense ceases for future tranches … but the point is that it is recognized in different periods depending on the vesting and it all starts on the grant date. I would imagine ESPPs are similar in that you earn the right to puchase stock at a discount based on your tenure (or perhaps performance).

so the aswer is indeed B?


should be D - both should be over the service period, which is not the vested period or the granted date

buffting888 Wrote: ------------------------------------------------------- > should be D - both should be over the service > period, which is not the vested period or the > granted date Its B. Service period is the vesting period

damn it which one is it?

Pink, how do you know service period is the vesting period? In schweser, on page 229, it says ESPP expense is recognized over remaining srevice life of the employees. That’s not same as vesting. Vesting period could be right away or couple of years…

What I was saying was in relation to service based awards. ESPP are recognized over the remaining service life.

Okay, so you do agree that ESPP is recognized over service period. Then how is answer B right when it says Lee is correct with respect to ESPP. Lee said that ESPP will affect earnings ove rhte vesting period of the plan. Am I missing something