Which of the following provisions must be in place for the plan to avoid recording compensation expense? (1) Substantially all employees may participate. (2) The discount from market is small (less than 5%). (3) The plan offers no substantive option feature. (4) There is no preferred stock outstanding

(1) Substantially all employees may participate.

(2) The discount from market is small (less than 5%).

(3) The plan offers no substantive option feature.

Explanation:

When a stock purchase plan is implented for staff, and the company does not want to record a compensation expense the following criteria must be met:

(1) Substantially all employees may participate.

(2) The discount from market is small (less than 5%).

(3) The plan offers no substantive option feature.

However it is not relevant that there is no preference stock outstanding.