47.While reviewing for the CPA exam, one of his fellow students commented on the following related to compensatory option plans and their effects on the Statement of Cash Flows: I. On the Grant Date, the net operating cash will not be affected. II.During the service period, operating cash will decrease because we have to recognize a compensation expense. III. When options are exercised, the net cash from financing activities will increase. Which of the three statements is correct? Select one: a. I, II and III are correct. b. I and III are correct. c. I and II are correct d. Only III is correct.
47.While reviewing for the CPA exam, one of his fellow students commented on the following related to compensatory option plans and their effects on the Statement of
Select one:
a. I, II and III are correct.
b. I and III are correct.
c. I and II are correct
d. Only III is correct.
Compensatory option plans are basically provided by the employer to its employees. Exercising the options create a source of operating cash flows for the respective companies in the form of reduction of income tax payments. These tax savings could be the major part of operating cash flows.
Grant date has nothing to do with change in the net operating cash flows.
When the options are exercised now there are more number of shares are outstanding and the cash from financing activities is increased as a result of the same.
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