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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 61

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What is Rudyard's diluted EPS (rounded) ?

A) $2.13.
B) $2.67.
C) $3.20.
D) $4.80.

E) B) and C)
F) A) and C)

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Question 62

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On December 31, 2012, Belair Corporation had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2013, Belair purchased 24,000 shares of common stock on the open market as treasury stock paying $20 per share. On June 30, 2013, Belair declared and issued a 2-for-1 stock split on outstanding common stock. Belair sold 6,000 treasury shares on September 30, 2013, for $15 per share. Net income for 2013 was $180,905. Required: Compute Belair's basic earnings per share for 2013.

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$180,905 - (30,000 x $50 ×7%)/...

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Question 63

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Red Company is a calendar-year U.S. firm with operations in several countries. At January 1, 2013, 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 2014?

The reporting of earnings per share is required only for:

The Burford Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2013, that permit executives to acquire 12 million of the company's $1 par value common shares within the next five years, but not before December 31, 2016 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate model, is $3 per option. No forfeitures are anticipated. Ignore taxes. Required: (1.) Determine the total compensation cost pertaining to the options. Show calculations. (2.) Prepare the appropriate journal entry (if any) to record the award of options on January 1, 2013. (3.) Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2013.

The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?

During the current year, East Corporation had 2 million shares of common stock outstanding. Two thousand $1,000, 8% convertible bonds 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) ?

Capital Consulting Company had 400,000 shares of common stock outstanding on December 31, 2013. On that date, there were also 5,000 shares of $100 par, 6% noncumulative preferred stock outstanding. On March 1, 2013, the company's common stock split 3-for-1. On December 15, 2013, a preferred dividend was declared and paid in the amount of $25,000. Net income for 2013 was $3,000,000. Required: Compute basic earnings per share (rounded to 2 decimal places) for the year ended December 31, 2013.

Under its executive stock option plan, W Corporation granted options on January 1, 2013, 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, 2015 (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 are exercised on April 2, 2016, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised?

The calculation of diluted earnings per share assumes that stock options were exercised and that the proceeds were used to:

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?

The calculation of diluted earnings per share assumes that stock options were exercised and that the proceeds were used to buy treasury stock at:

Reacting to opposition to the FASB's "Share-Based Payment" Exposure Draft, Senator Carl Levin stated, "Stock options are the 800-pound gorilla that has yet to be caged by corporate reform." In reference to a bill that would thwart the FASB's position, Senator John McCain said, "This legislation blocking stock option expensing not only undermines FASB's independence, but undermines the effort to restore confidence in our financial markets as well." Discuss what these two senators meant by their statements.

What will Angel report as diluted earnings per share for 2013, rounded to the nearest cent?

Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2013, 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 2013-2015, assuming Pastner prepares its financial statements in accordance with International Financial Reporting Standards.

How many types of potential common shares must a corporation have in order to be said to have a complex capital structure?

On December 31, 2012, Albacore Company had 300,000 shares of common stock issued and outstanding. Albacore issued a 10% stock dividend on June 30, 2013. On September 30, 2013, 12,000 shares of common stock were reacquired as treasury stock. What is the appropriate number of shares to be used in the basic earnings per share computation for 2013?

On January 1, 2013, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company's common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2015, by the grantees still in the employ of the company. No options were terminated during 2013, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $31 per share at the date of the grant. G Corp. used the Binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2013?

When computing diluted earnings per share, which of the following will not be considered in the calculation?

On March 1, 2017, when the market price of Wilson's stock was $14 per share, 3 million of the options were exercised. The journal entry to record this would include: