The article “
Avoiding FASB 123(R) Pitfalls
” (May 07, page 74) was very informative. However, I wonder: In Exhibit
1, the very first journal entry, compensation expense is debited, but
what is credited? Is it additional paid-in capital, or possibly “options
outstanding”? If it is APIC, wouldn’t this be confused with the actual
excess tax deductions that are eventually credited to APIC? Also, what
happens to the original corresponding credit to the deferred income
credit? I could just guess that it is used when the income tax is paid.
Option accounting is complex, and I am glad to see it related to net
operating loss companies.
Don Wirtz, retired accountant
Author’s reply: The credit entry that accompanies
the debit to compensation expense is a credit to additional paid-in
capital. For reference, see the article by Nancy Nichols and Luis
and the Deferred Tax Bite” (March 06, page 71). Their article
addresses your second question also.
David Randolph, CPA, Ph.D.