Summary
Students prepare an analysis of Microsoft Corporation’s financial statements and footnotes to understand the impact of its use of stock options. In addition to a general analysis of Microsoft’s use of stock options and their impact on the financial statements, students focus more specifically on Microsoft’s April 2000 megagrant of 70 million options after a substantial decline in Microsoft’s stock price. The primary issues that students must explore are: (1) the differences in financial reporting under the intrinsic value and fair value methods; (2) the effect of stock options on the company’s financial statements; (3) the income tax benefit from stock options; and (4) the net cost or benefit to Microsoft from granting stock options.