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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 21

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How is a complex capital structure different from a simple capital structure?

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A complex capital structure is one that ...

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Question 22

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When computing earnings per share, noncumulative preferred dividends not declared should be:

A) Ignored.
B) Deducted from earnings for the year.
C) Added to earnings for the year.
D) Deducted, net of tax effect, from earnings for the year.

E) A) and D)
F) A) and C)

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Question 23

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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.

At December 31, 2009 and 2008, G Co. had 50,000 shares of common stock and 5,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2009 or 2008. Net income for 2009 was $500,000. For 2009, basic earnings per common share amounted to:

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 ten shares of common stock. What is diluted EPS?

Basic and diluted earnings per share data are required to be reported:

Martin 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 10% discount. During 2009, employees purchased 8 million shares; during this same period, the shares had an average market price of $15 per share. Martin's 2009 pretax earnings will be reduced by:

In order to encourage employee ownership of the company's $1 par common shares, T 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 June, employees purchased 150,000 shares at a time when the market price of the shares on the New York Stock Exchange was $10 per share. Required: Prepare the appropriate journal entry to record the June purchases of shares under the employee share purchase plan.

What is the treasury stock method of accounting for stock options, warrants, and rights?

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

What is the advantage of a stock appreciation right over stock options?

What is Falwell's diluted earnings per share for 2009, rounded to the nearest cent?

Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2009, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within 4 years. The common shares have a market price of $20 per share on the award date. Required: (1.) Determine the total compensation cost from these restricted shares. (2.) Prepare the appropriate journal entry to record the award on January 1, 2009. (3.) Prepare the appropriate journal entry to record compensation expense on December 31, 2009. (4.) Suppose a 15% forfeiture rate was expected prior to vesting. Determine the total compensation cost, assuming the company follows the fair value approach and chooses to anticipate forfeitures at the grant date.

On January 1, 2009, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2010, after the employee completed two years of service. The option was exercised on January 10, 2011. The market prices of D's stock were as follows: January 1, 2009, $30; December 31, 2010, $50; and January 10, 2011, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2009, D should recognize compensation expense of:

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

Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS.

When computing earnings per share, cumulative preferred dividends not declared should be:

A primary goal of earnings per share determination is:

Which of the following will require a recalculation of weighted-average shares outstanding for all years presented?

On December 31, 2008, Albacore Company had 300,000 shares of common stock issued and outstanding. Albacore issued a 10% stock dividend on June 30, 2009. On September 30, 2009, 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 2009?