Exam 19: Accounting for Employee Compensation and Benefits

On January 1, Year 1, Axis Corporation granted employees 63,000 stock options for 63,000 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $24. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. At the time of issue, the fair value of the options is estimated to be $31 per option. Two years later, the options are exercised. What is the appropriate journal entry?

Which of the following statements regarding stock options is true?

Which of the following conditions is not required for an employee stock purchase plan to be non-compensatory?

Which of the following is not a situation in which employee compensation is classified as a liability?

The carrying value of liability-classified awards is not adjusted for changes in fair value.

On January 1, Year 1, Axis Corporation granted employees 66,000 stock options for 66,000 shares of $3 par value common stock. The exercise price on the date of issue was equal to the market price of $20. There is a two-year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $39 per option and the company does not expect any forfeitures of the options. At the end of Year 2, the fair value of each option is $44. What is the journal entry for compensation expense for Year 2?

Mega Corporation sponsors a defined-benefit plan for its employees. Compute the pension cost for the year, given the following information: Service cost $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $30,000 Interest on beginning PBO $\quad$ $\quad$ $\quad$ $\quad$ $16,000 Expected return on plan assets $\quad$ $\quad$ $\quad$ $45,000 Amortization of prior service costs $\quad$ $\quad$ $5,000 Amortization of net actuarial gain $\quad$ $\quad$ $12,000

The initial journal entry to record an equity-classified award serves as a disclosure for a stock option plan.

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 110,000 options were granted for 110,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $5 based upon an option pricing model. What is the journal entry to record compensation expense for Year 1? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Teague Corporation permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During July, employees purchased 33,000 shares at a time when the established market price was $26 per share. Teague will record compensation expense associated with July purchases of ________.

Block Corporation permits key employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During July, employees purchased 36,000 shares at a time when the established market price was $31 per share. Block will record salary expense associated with July purchases of ________.

The projected benefit obligation (PBO) is decreased by ________.

The difference between pension plan assets and the PBO is equal to the funded status of the plan.

In what ways must an accountant exercise judgment in relation to stock-based compensation plans?

Walker, Incorporated Walker, Incorporated uses stock options as a compensation incentive for its top executives. On January 1, Year 1, 25,000 options were granted, each giving the holder the right to acquire one $5 par common share. The exercise price is $60 per share. The vesting period is 4 years. Options vest on January 1, Year 5 and cannot be exercised before that date and will expire on December 31, Year 8. The fair value of the 25,000 options, estimated by an appropriate option pricing model is $50 per option. -Refer to Walker Corporation. On April 1, Year 7, when the market price of Walker's stock was $20 per share, 15,000 of the options were exercised. Make the appropriate journal entry to record this transaction.

List the conditions in which employee compensation is classified as a liability under liability classified awards.

Merciful Industries has a beginning PBO balance of $900,000 and a settlement rate of 6%. The expected return is 7%. The beginning balance of pension plan assets is $1,000,000. What is the journal entry to record the expected return on plan assets?