Exam 19: Share-Based Compensation and Earnings Per Share

Jet Corporation had 8 million shares of common stock outstanding during the current calendar year.On July 1,Jet issued ten thousand $1,000 face value,convertible bonds.Each bond is convertible into 50 shares of common stock.The bonds were issued at face amount and pay interest quarterly for 20 years.They have a stated rate of 12%.Jet had income before tax of $30 million and a net income of $18 million.Jet would report the following EPS data (rounded):

Fully vested incentive stock options for 100,000 shares of common stock at an exercise price of $50 were outstanding for the entire year.The market price of the stock during the year averaged $56. Required: By how many shares will the assumed exercise of these options increase the weighted-average number of shares outstanding when calculating diluted earnings per share?

Woolery,Inc. ,had 50,000 shares of common stock outstanding at January 1,2016.On March 31,2016,an additional 12,000 shares were sold for cash.Woolery also had $4,000,000 of 6% convertible bonds outstanding throughout the year.The bonds are convertible into 40,000 shares of common stock.Net income for the year was $350,000.The tax rate is 35%. Required: Compute basic and diluted earnings per share (rounded to 2 decimal places)for the year ended December 31,2016.

XYZ Company had 200,000 shares of common stock outstanding on December 31,2015.On July 1,2016,XYZ issued an additional 50,000 shares for cash.On January 1,2016,XYZ issued 20,000 shares of convertible preferred stock.The preferred stock had a par value of $100 per share and paid a 5% dividend.Each share of preferred stock is convertible into 8 shares of common.During 2016,XYZ paid the regular annual dividend on the preferred and common stock.Net income for the year was $300,000. Required: Calculate XYZ's basic and diluted earnings per share (rounded to 2 decimal places)for 2016.

On December 31,2015,Jackson Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%,$50 par,cumulative preferred stock outstanding.On February 28,2016,Jackson purchased 24,000 shares of common stock on the open market as treasury stock paying $45 per share.Jackson sold 6,000 of the treasury shares on September 30,2016,for $47 per share.Net income for 2016 was $180,905.Also outstanding at December 31,2015,were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40.These stock options were exercised on November 1,2016.The market price of the common shares averaged $50 during 2016. Required: Compute Jackson's basic and diluted earnings per share (rounded to 2 decimal places)for 2016.

The adjustment to the weighted-average shares for retired shares is the same as for issuing new shares except:

Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives,subject to forfeiture if employment is terminated within three years.Horrocks' common shares have a market price of $10 per share on January 1,2015,the grant date,and at December 31,2016,averaging $10 throughout the year.When calculating diluted EPS at December 31,2016,the net increase in the denominator of the EPS fraction will be:

ABC declared and paid cash dividends to its common shareholders in January of the current year.The dividend:

On January 1,2016,Hage Corporation granted incentive stock options to purchase 18,000 of its common shares at $7 each.The options are exercisable after one year.The market price of common averaged $9 per share during the quarter ending on March 31,2016.There was no change in the 100,000 shares of outstanding common stock during the quarter ended March 31,2016.Net income for the quarter was $8,268.The number of shares to be used in computing diluted earnings per share for the quarter is:

When a company's only potential common shares are convertible bonds:

Gear Corporation had the following common stock record during the current calendar year: What is the number of shares to be used in computing basic EPS?

On December 31,2015,Heffner Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%,$100 par,cumulative preferred stock outstanding.On February 28,2016,Heffner purchased 24,000 shares of common stock on the open market as treasury stock paying $45 per share.Heffner sold 6,000 of the treasury shares on September 30,2016,for $47 per share.Net income for 2016 was $540,000.The income tax rate is 40%.Also outstanding at December 31,2015,were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40.The market price of the common shares averaged $50 during 2016.Five thousand 6% bonds were issued at par on January 1,2016.Each $1,000 bond is convertible into 125 shares of common stock.None of the bonds had been converted by December 31,2016,and no stock options were exercised during the year. Required: Compute basic and diluted earnings per share (rounded to 2 decimal places)for Heffner Company for 2016.

The compensation associated with restricted stock units (RSUs)under a stock award plan is:

To encourage employee ownership of the company's common shares,KL Corp.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 15% discount.During May,employees purchased 10,000 shares at a time when the market price of the shares on the New York Stock Exchange was $15 per share.KL will record compensation expense associated with the May purchases of:

Contingently issuable shares may be included in:

If the options have a vesting period of five years,what would be the balance in "Paid-in Capital-Stock Options" three years after the grant date?

If convertible bonds were issued at a discount,when computing diluted EPS,the amortization of the bond discount:

If executive stock options or restricted stock are outstanding when calculating diluted EPS,what are the components of the "proceeds" assumed available for the repurchase of shares under the treasury stock method?

The compensation associated with executive stock option plans is:

What is an antidilutive security?