How to Calculate Stock Basis for Exercised Options

Receive notification from your brokerage that an option has been exercised. This will most likely come in the form of a trade confirmation the day after option expiration. If an option is 'In-The-Money' by even one cent, the option will be exercised.
Determine your initial cost in the stock. This will be the share price you paid to buy the stock for the first time.
Adjust your cost basis by calculating the total option premiums you have collected against the stock. Keep in mind that options which expired previously without being exercised also reduce your basis in the stock.For example, let's say you bought 100 shares of XYZ in January for $10 per share. You then sold the February $12.50 call option and collected a $1 premium, lowering your basis in the stock to $9 per share. On option expiration day in February, the stock is $11 per share, so the option expires worthless. You decide to sell a March $12.50 call, and this time you collect a $2 premium, lowering your overall basis to $7 per share.
Calculate your profit or loss. If an call option is exercised at a strike price higher than your basis in the stock, you have made a profit. To calculate the profit, you must subtract your basis in the stock from the strike price of the option.To use our earlier example, on option expiration day in March the stock is $13 per share. The option you sold is exercised at its strike price ($12.50). Your basis in the stock is $7. Therefore, $12.50-$7=$5.50 profit per share on the trade.If an option is exercised at a strike price below your cost basis, you have a loss. To calculate the loss, subtract the strike price from your basis in the stock.
Calculate your tax basis. For tax purposes, your basis in a stock also includes all the commissions and fees you incurred during the trade. The easy way to calculate that is to add up all the commissions and fees and divide the total by the number of shares you own.

How to Record Stock Options on a Balance Sheet

Record the periodic cost allocation of the stock option. The periodic cost is the value of the stock options divided by the number of service years. Record a journal entry that debits 'compensation expense' (this expense is reported in the income statement) and credits 'additional paid in capital -- stock options' (a stockholder's equity account reported in the balance sheet). Record this cost annually throughout the employee's vesting period.
Record the exercise of the stock option. When the exercise date arrives, the employee can exercise the option and purchase the company's common stock at the exercise price. Common stock is valued at par, a designated dollar amount used to value each share of common stock on the balance sheet. When common stock is sold or repurchased, it is usually for a price above the par value, so the excess amount over par is credited to an 'additional paid in capital' account. The journal entry to record the exercise of the option involves debiting 'cash' for the number of shares purchased multiplied by the exercise price. In addition, debit 'additional paid in capital -- stock options' for the balance accumulated in the account over the vesting period and credit 'common stock' for the number of shares purchased multiplied by the stock's par value. The remaining credit is made to 'additional paid-in capital in excess of par (common stock)' for the amount needed to balance the journal entry.
Record the expiration of the options, if applicable. If a stock option is not exercised on its exercise date, it will expire or sometimes only some of the shares offered by the option are purchased. If the options expire, the balance in the 'additional paid in capital -- stock options' account needs to be transferred to 'additional paid in capital -- expired stock options' account. By debiting the stock options account and crediting the expired stock options account, the cost is reclassified within the stockholder's equity section of the balance sheet. When a portion of the option shares are exercised and a portion expire, allocate the costs as explained in steps 2 and 3 based on the number of shares purchased and the remaining value of the option that expired.

How to Calculate the Expected Rate of Return for Preferred Stock

Determine the dividend on the preferred stock. Preferred stock generally pays a fixed dividend, so you will know how much the stock is going to pay the stock owner each year. For example, assume the dividend of the preferred stock is $12 per share annually. If the dividend is paid quarterly, you will need to multiply it by 4 to get the annual dividend.
Determine the selling price of the preferred stock. Businesses will have to deal with flotation costs in calculating a stock price, but an individual investor can simply look at the price that the stock is being offered for. For example, assume preferred stock in company ABC is being offered at $200 a share.
Divide the expected dividend per share by the price per share of the preferred stock. With our example, this would be $12/$200 or .06. Multiply this answer by 100 to get the percentage rate of return on your investment. In our example, .06 x 100 = 6 so the rate of return for the preferred stock is 6 percent per year.

How to Calculate Stock Prices From a Balance Sheet

Identify the firm's total stockholder's equity holdings from the balance sheet. This includes the firm's preferred stock, common stock, additional paid-in-capital, and any retained earnings. For example if the firm's balance sheet showed $1 million of preferred stock, $5 million of common stock, $800,000 of additional paid-in-capital, and $500,000 in retained earnings, the firm's total equity holdings value would be 7.3 million. The equation would be 1,000,000 + 5,000,000 + 800,000 + 500,000 = 7,300,000. If the firms total assets are $10 million, this would leave $2.7 million in liabilities. The equation would be 10,000,000 - 7,300,000 = 2,700,000.
Determine the firm's total common stockholder's equity from the balance sheet. Calculate the firm's total common stockholder's equity by subtracting the total preferred stock value from the firm's total stockholder's equity holdings. For example, if the firm's total stock holder's equity is $7.3 million and its preferred stock holdings are $1 million, then the firm's total common stock holder's equity would be $6.3 million. The equation would be 7,300,000 - 1,000,000 = 6,300,000. The $6.3 million represents the total value of the common equity shareholders portion of the firm's total equity capital structure.
Calculate the firm's stock price book value from the balance sheet. Divide the firm's total common stockholder's equity by the average number of common shares outstanding. For example, if the firm's total common stockholder's equity is $6.3 million and the average number of common shares outstanding is $100,000, then the stock price's book value for the firm would be $63. The equation would be 6,300,000 / 100,000 = 63. This would be based on the information obtained from the firm's balance sheet.