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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 41

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Olde Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2009, that permit executives to acquire 2 million of the company's $1 par value common shares within the next five years, but not before December 31, 2010 (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 option pricing model, is $2 per option. No forfeitures are anticipated. Ignore taxes. Required: (1.) Determine the total compensation cost pertaining to the options, assuming the fair value approach has been selected. (2.) Prepare the appropriate journal entry to record the award of the options on January 1, 2009. (3.) Prepare the journal entry to record compensation expense on December 31, 2009. (4.) Prepare the journal entry to record compensation expense on December 31, 2010.

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Question 42

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At the end of 2009, what is the maximum number of shares that could possibly be issued if all stock options and awards are exercised? Explain why V Co. used only 3.3 million in its computation for 2009.

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A total of 11.6 million shares is the ma...

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Question 43

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Getaway Travel Company reported net income for 2009 in the amount of $50,000. During 2009, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2009. A 2-for-1 stock split was granted on July 5, 2009. What is the 2009 basic earnings per share?

When recognizing compensation under a stock option plan, unanticipated forfeitures are treated as:

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

Jmart Corporation included the following disclosure note in a recent annual report: Required: 1. Based on the information provided in the disclosure note, determine the weighted average market price of the restricted stock issued. 2. How much compensation expense did Jmart report for the year following the year in which the restricted stock was issued? RESTRICTED STOCK (in part) ......, we issued 100,000 shares of restricted stock at market prices ranging from $\$ 46.00$ to $\$ 60 . .$ . The restricted stock generally vests over three years, during which time we will recognize total compensation expense of approximately $\$ 6$ million.

Basic earnings per share is computed using:

When we take into account the dilutive effect of convertible securities in the calculation of EPS, the method used is called the:

During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand, $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into ten shares of common. What is diluted EPS?

The single accounting number in the annual report that receives the most attention by investors is:

Flyaway Travel Company reported net income for 2009 in the amount of $90,000. During 2009, Flyaway declared and paid $2,125 in cash dividends on its nonconvertible preferred stock. Flyaway also paid $10,000 cash dividends on its common stock. Flyaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on April 1, 2009. What is 2009 basic earnings per share?

Stock options do not affect the calculation of:

Dulce Corporation had 200,000 shares of common stock outstanding during the current year. At the beginning of the year, options for 10,000 shares of common stock were granted with an exercise price of $20. The average market price of the common stock during the year was $25. Net income was $4 million. What is diluted EPS?

On March 1, 2013, 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:

Preferred dividends would not be subtracted from earnings when computing earnings per share in a year when the dividends are not declared if the preferred stock is:

What is the "if converted method"?

The reporting of earnings per share is required only for:

Dublin Inc. had the following common stock record during the current calendar year: A 10% stock dividend was paid on December 1. What is the number of shares to be used in computing basic EPS?

What amount should M recognize as compensation expense for 2009?

XYZ paid $10,000 in dividends in January of the current year to its preferred shareholders. The preferred stock is nonconvertible and noncumulative. The dividend: