Exam 19: Share-Based Compensation and Earnings Per Share

On January 1,2016,Red Inc.issued stock options for 200,000 shares to a division manager.The options have an estimated fair value of $6 each.To provide additional incentive for managerial achievement,the options are not exercisable unless divisional revenue increases by 6% in three years.Red initially estimates that it is probable the goal will be achieved.Ignoring taxes,what is compensation expense for 2016?

Wilson's compensation expense in 2016 for these stock options was:

If restricted stock is forfeited because an employee leaves the company,the appropriate accounting procedure is to:

Pastner Brands is a calendar-year firm with operations in several countries.As part of its executive compensation plan,at January 1,2016,the company had issued 20 million executive stock options permitting executives to buy 20 million shares of stock for $25.The vesting schedule is 20% the first year,30% the second year,and 50% the third year (graded-vesting).The fair value of the options is estimated as follows: Required: Determine the compensation expense related to the options to be recorded each year for 2016-2018,assuming Pastner prepares its financial statements in accordance with International Financial Reporting Standards (IFRS).

On December 31,2015,Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10).On February 28,2016,Merlin issued an additional 36,000 shares of common stock.A 10% stock dividend was declared and distributed on July 1,2016.On September 1,2016,9,000 shares were retired.At year-end,there were fully vested incentive stock options outstanding for 30,000 shares of common stock (adjusted for the stock dividend).The exercise price was $18.The market price of the common stock averaged $20 during the year.Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2013 and convertible into 50,000 common shares (adjusted for the stock dividend).Net income was $900,000.The tax rate for the year was 40%. Required: Compute basic and diluted EPS (rounded to 2 decimal places)for the year ended December 31,2016.

Under its executive stock option plan,Z Corporation granted options on January 1,2016,that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years,but not before December 31,2018 (the vesting date).The exercise price is the market price of the shares on the date of grant,$18 per share.The fair value of the options,estimated by an appropriate option pricing model,is $4 per option.No forfeitures are anticipated.The options expired in 2022 without being exercised.By what amount will Z's shareholder's equity be increased?

Red Company is a calendar-year U.S.firm with operations in several countries.At January 1,2016,the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $25.The vesting schedule is 20% the first year,30% the second year,and 50% the third year (graded-vesting).The fair value of the options is estimated as follows: What is the compensation expense related to the options to be recorded in 2017?

When several types of potential common shares exist,the one that enters the computation of diluted EPS first is the one with the:

Why are preferred dividends deducted from net income when calculating EPS?

What is Angel's basic earnings per share for 2016,rounded to the nearest cent?

When we assume conversion of convertible bonds,the numerator is increased by:

Assume that all compensation expense from the stock options granted by Wilson already has been recorded.Further assume that 200,000 options expire in 2021 without being exercised.The journal entry to record this would include:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

On December 31,2015,the Frisbee Company had 250,000 shares of common stock issued and outstanding.On March 31,2016,the company sold 50,000 additional shares for cash.Frisbee's net income for the year ended December 31,2016,was $700,000.During 2016,Frisbee declared and paid $80,000 in cash dividends on its nonconvertible preferred stock.What is the 2016 basic earnings per share (rounded)?

Lance Chips granted restricted stock units (RSUs)representing 40 million of its $1 par common shares to executives,subject to forfeiture if employment is terminated within four years.After the recipients of the RSUs satisfy the vesting requirement,the company will distribute the shares.The common shares had a market price of $5 per share on the grant date.The total compensation cost pertaining to the restricted stock units is:

Nagy Industries reported a net income of $619,369 on December 31,2016.At the beginning of the year,the company had 500,000 common shares outstanding.On April 1,the company sold 27,000 shares for cash.On August 31,the company issued 48,000 additional shares as part of a merger.On December 1,2016,the company declared and issued a 10% stock dividend. Required: Compute Nagy's net income that would produce a basic EPS of $2.00 per share for 2016.

Which of the following statements is true regarding share appreciation rights (SAR)payable in cash?

Baldwin Company had 40,000 shares of common stock outstanding on January 1,2016.On April 1,2016,the company issued 20,000 shares of common stock.The company had outstanding fully vested incentive stock options for 10,000 shares exercisable at $10 that had not been exercised by its executives.The average market price of common stock for the year was $12.What number of shares of stock (rounded)should be used in computing diluted earnings per share?

During the current year,East Corporation had 2 million shares of common stock outstanding.Two thousand 8% convertible bonds,each with $1,000 face value,were issued at face amount at the beginning of the year.East reported income before tax of $3 million and net income of $1.8 million for the year.Each bond is convertible into 10 shares of common stock.What is diluted EPS (rounded)?

Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements.