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Definition: Exercise date refers to the date on which a trader decides to exercise an option (Call/Put) on an exchange or with a brokerage whether bought or written/sold where 'exercise' means making use of the actual right specified in the contract.
When stock options are exercised, the company needs to issue some additional shares to compensate the employees or investors who have exercised them. Due to this, the total number of outstanding shares. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.
In addition to being reported on the income statement, the option grant should also appear on the balance sheet. In our opinion, the cost of options issued represents an increase in shareholders' equity at the time of grant and should be reported as paid-in capital.
Stock options may be considered a form of compensation which gives the employee the right to buy an amount of company stock at a set price during a certain time period. Under U.S. accounting methods, stock options are expensed according to the stock options' fair value.
This annual expense is reported on the income statement and under stockholder's equity on the balance sheet. When the options are exercised or expire, the related amounts will be reported in accounts that are part of the stockholder's equity section of the balance sheet.
Stock options that are in-the-money at the time of expiration will be automatically exercised. For puts, your options are considered in-the-money if the stock price is trading below the strike price. Conversely, call options are considered in-the-money when the stock price is trading above the strike price.
As long as you have held the stock for the required holding period at least one year from the exercise date and two years from the grant date the entire difference between the stock's selling price and your cost basis will be taxed as a long-term capital gain.
Rather than recording the expense as the current stock price, the business must calculate the fair market value of the stock option. The accountant will then book accounting entries to record compensation expense, the exercise of stock options and the expiration of stock options.
Stock-based compensation that is redeemable at the employee's option is a considered an employer obligation, and thus a liability while awards that are redeemable at the employer's option are classified as equity.
The first important part of the vesting schedule is your Cliff Date. This is the first date that any of your options will become eligible for exercise. The Cliff Date is typically 1 year after the issue date of the grant or the Vesting Calculation Date.