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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 71

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The Santiago Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2009, that permit executives to acquire 70 million of the company's $1 par value common shares within the next eight years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $27 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Ignore taxes. Required: 1. Determine the total compensation cost pertaining to the options. 2. Prepare the appropriate journal entry (if any) to record the award of options on January 1, 2009. 3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2009.

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Question 72

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On December 31, 2008, the Bennett Company had 100,000 shares of common stock issued and outstanding. On July 1, 2009, the company sold 20,000 additional shares for cash. Bennett's net income for the year ended December 31, 2009 was $650,000. During 2009, Bennett declared and paid $89,000 in cash dividends on its nonconvertible preferred stock. What is the 2009 basic earnings per share?

A) $5.91.
B) $5.61.
C) $5.10.
D) None of these is correct.

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

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Question 73

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Steverino Inc. offers a restricted stock award plan to its vice presidents. On January 1, 2009, the corporation granted 10 million of its $5 par common shares, subject to forfeiture if employment is terminated within 2 years. The common shares have a market value of $10 per share on the date the award is granted. Required: (1.) Assume that no shares are forfeited. Determine the total compensation cost pertaining to the restricted shares. (2.) Prepare the appropriate journal entries related to the restricted stock through December 31, 2010.

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

What is restricted stock? Describe how compensation expense is determined and recorded for a restricted stock plan.

On January 1, 2009, 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, 2011, by the grantees still in the employ of the company. No options were terminated during 2009, 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, 2009?

January 1, 2009, 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 was $10.50 per share on March 31, 2009, and averaged $9 per share during the quarter then ended. There was no change in the 100,000 shares of outstanding common stock during the quarter ended March 31, 2009. 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:

Which of the following is not a potential common stock?

How are outstanding stock options and awards taken into account in computing diluted EPS for V Co.?

On January 1, 2009, 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 reduction in earnings in 2009?

The current FASB standard requires using intrinsic value accounting for employee stock options.

Contingently issuable shares may be included in:

On December 31, 2008, Beta Company had 300,000 shares of common stock issued and outstanding. Beta issued a 5% stock dividend on June 30, 2009. On September 30, 2009, 40,000 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?

The result of a stock split is:

On January 1, 2009, Oliver Foods issued stock options for 40,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Oliver Foods' stock price increases by 5% in four years. Oliver Foods initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in each of the next four years?

If a company's capital structure includes convertible bonds, diluted EPS might be reduced even if the bonds are not actually converted during the year.

If a stock split occurred, when calculating the current year's EPS, the shares are treated as issued:

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

Which of the following results in increasing basic earnings per share?