Assigning Credit Where It’s Due

BY DON WIRTZ

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
Lakewood, Ohio

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 Betancourt “Options and the Deferred Tax Bite” (March 06, page 71). Their article addresses your second question also.

David Randolph, CPA, Ph.D.
Dayton, Ohio

SPONSORED REPORT

How the election may affect taxation of business income

This report summarizes recent proposals to reform the U.S. business income tax system and considers the path to enactment of any such legislation.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

Did you follow 2016’s biggest accounting news?

CPAs will remember 2016 as a year of new standards and new faces. How well did you follow the biggest accounting events? The 7 questions in this quiz will help you find out