medium · Investment Banking

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

1. Equity decreases by the full amount of the SBC expense because of the dilution.
2. Total Assets increase by the amount of the SBC expense to reflect the value of the employees.
3. Total Liabilities increase because the company owes shares to its employees.
4. Total Assets are unchanged, Total Liabilities are unchanged, and the internal components of Equity shift.

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