Twilio allows developers to incorporate communicationcapabilities, including voice, messaging, video and authentication,into software applications, via Application Programming Interfaces(APIs). Twilio sells it products primarily by focusing on andservicing software developers. Stock-based compensation (e.g.,stock options, restricted stock, etc.) are common forms ofcompensation for young tech companies. Most companies set the stockoption exercise price at the stock’s current market value orslightly out-of-money. Consequently, the option’s grant value isusually less than the current value of the underlying shares. Theaccounting for stock options is based on the value of the optionsat the time of grant. Typically, over the option’s service (orvesting) period, the firm recognizes the options’ grant value ascompensation expense with a corresponding credit to shareholders’equity. For 2018, Twilio recognized $93.3 million in stock-basedcompensation expense (footnote disclosure not provided). Refer toyour ACC 502 notes regarding accounting for equity-basedcompensation for additional information. On its IPO in June 2016,the Twilio’s shares were priced at $15 but ended the first day oftrading at $28.53, a 90+% increase. Since then, the share price hascontinued to climb. As of December 31, 2018, the date of latestyear-end, Twilio’s share price was $80 yielding a $10.6 billionmarket capitalization. Today (June 6, 2019), the shares weretrading around $140. In less than two years, the share price isnearly 10x greater than its IPO price. a. In Twilio’s footnote forstock-based compensation (see below, next page), the intrinsicvalue of the outstanding options as of December 31, 2018 was $543.6million. Explain whether the $543.6 million in intrinsic value foroutstanding stock option is recognized in Twilio’s financialstatements? (2 points) b. During 2018 Twilio’s footnote forstock-based compensation (see below, next page) reported thatTwilio’s stock option holders exercised over 3.6 million optionswith an aggregate intrinsic value of $178.5 million. Explainwhether the intrinsic value of the options exercised in 2018 isrecognized in the Twilio’s financial statements? (2 points) c. For3b, if the intrinsic value for the stock option exercised is notcaptured in the financial statements, how should the analyst adjustthe reformulated financial statements for the intrinsic value ofthe options exercised during 2018? (2 points)