Chapter 19, Problem 19.1Q

What is the allocation period used to expense stock-based compensation?

To determine

The allocation period used to expense stock based compensation.

Answer to Problem 19.1Q

The stock based compensation is to be expensed at accrual basis.

Explanation of Solution

Stock-Based Compensation:

It is the advantage which is earned by the employees by rendering their services in the company. Instead of paying in cash, they are been provided with listed number of shares at a given price. The employer records these benefits as an expense in his books of accounts and also reports it in income statement.

Accrual Period used to Expense Stock based Compensation:

The amount which the employees had received at the end of their service rendering period should be estimated on accrual basis because it is the amount that they had earned while providing the service which is accumulated and received at last.

Conclusion

Hence, the allocation period used is accrual basis to expense stock-based compensation.