Under its restricted stock unit (RSU) plan, Peach Company granted restricted stock units (RSUs) representing 5 million of its $1 par common shares to certain key executives. At vesting, recipients are given the option to receive the cash equivalent of the number of shares used to value the RSUs. Peach plans to account for these new RSUs in the same manner as described in the companys disclosure notes to its financial statements: Share-Based Compensation (in part) Share-based compensation cost for RSUs is measured based on the closing fair market value of the Companys common stock on the date of grant The Company reports paid-in capital and recognizes share-based compensation cost over the awards requisite service period on a straight-line basis. Which of the following is an accurate statement regarding the companys policy?

1.The policy is inappropriate because we consider a stock award that can be settled in cash to be a liability rather than equity.

2.The policy is appropriate as long as Peach periodically adjusts the compensation based on the change in the stocks fair value until the award vests.

3.This approach is conceptually correct and consistent with accounting for stock options.

4.The policy is appropriate because the recipients have only the option to receive cash; cash settlement is not specified.