medium · Investment Banking accounting

Which of the following describes the impact of SBC on the Balance Sheet identity (Assets = Liabilities + Equity)?

  1. Equity decreases by the full SBC expense, since issuing new shares to employees dilutes existing shareholders' stakes.
  2. Total Assets increase by the SBC expense amount to reflect the value the employees are believed to provide.
  3. Total Liabilities increase because the company legally owes shares to its employees for the award.
  4. Total Assets are unchanged, Total Liabilities are unchanged, and the internal components of Equity shift.

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