Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

15. GAAP vs IFRS

GAAP vs. IFRS: Introduction

Financial Accounting

15. GAAP vs IFRS

GAAP vs. IFRS: Introduction

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Multiple Choice

Under current GAAP, stock options must be reported in the income statement at:

zero, unless exercised

their fair value on the grant date

the amount of cash received from employees

their intrinsic value on the exercise date

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Verified step by step guidance

Understand the concept of stock options under GAAP: Stock options are a form of compensation provided to employees, giving them the right to purchase company stock at a predetermined price. Under current GAAP, these must be accounted for in the financial statements to reflect their impact on the company's financial position.

Learn about the fair value method: GAAP requires that stock options be reported at their fair value on the grant date. Fair value is determined using valuation models such as the Black-Scholes model or a binomial model, which consider factors like stock price, exercise price, volatility, and time to expiration.

Clarify why intrinsic value is not used: Intrinsic value is the difference between the stock's market price and the exercise price at the time of exercise. However, GAAP mandates the use of fair value on the grant date because it provides a more accurate representation of the cost of the stock options at the time they are granted.

Understand why cash received is not the basis: The amount of cash received from employees when they exercise stock options is not relevant for reporting purposes under GAAP. The focus is on the fair value of the options at the grant date, not the cash inflow during exercise.

Review the income statement impact: The fair value of stock options is recognized as an expense in the income statement over the vesting period, which is the period during which employees earn the right to exercise the options. This ensures that the cost of employee compensation is properly matched with the period in which the benefit is provided.