Intermediate Accounting, Thirteenth Edition

Chapter 16. DILUTIVE SECURITIES AND EARNINGS PER SHARE

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

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Kicking the Habit

Some habits die hard. Take stock options—called by some "the crack cocaine of incentives." Stock options are a form of compensation that gives key employees the choice to purchase stock at a given (usually lower-than-market) price. For many years, U.S. businesses were hooked on these products. Why? The combination of a hot stock market and favorable accounting treatment made stock options the incentive of choice. They were compensation with no expense to the companies that granted them, and they were popular with key employees, so companies granted them with abandon. However, the accounting rules that took effect in 2006 required expensing the fair value ...