Accounting for compensation in the form of stock options;

              Accounting Research
BULLETINS
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Issued by the Committee on Accounting Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1948 by American Institute of Accountants
November, 1948 No. 37
Accounting for Compensation in the Form of Stock Options
INTRODUCTION
1. The practice of granting to officers and other employees options to purchase or subscribe for shares of the corporation's capital stock has been followed by a considerable number of corporations. These options generally are a part of the corporation's cost of the ser-vices of officers and other employees, and should be accounted for as such. The amounts involved are sometimes substantial and omis-sion of such costs from the corporation's income accounting may result in overstatement of net income to a significant degree. Ac-cordingly, consideration is given in this bulletin to the accounting treatment of stock options involving compensation.
2. Stock options granted by corporations to their officers and other employees are presumed to be a form of compensation for services unless it is clear that they are granted primarily (a) for the purpose of raising capital or (b) to promote widespread ownership of the corporation's stock among its employees. In either of these situations, the statements made herein are not intended to apply. No differen-tiation is made in this bulletin as to the nature of compensation. Salaries, wages, inducements, incentives, and similar terms are all considered to be descriptive of compensation.
3. A stock option involving compensation usually arises out of an agreement between an employer corporation and an officer or other employee (hereinafter referred to as the grantee) stipulating that at a specified time or during some determinable period, at the grantee's election, and usually upon the fulfillment by the grantee of certain conditions, the corporation will issue shares of its capital stock to the grantee at a stated price. The agreement usually con-tains provisions specifying the period of time, or conditions, if any, which must elapse or be met, before the option may be exercised, the time the option expires, the price to be paid for the shares, and
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