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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 1

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What amount should M recognize as compensation expense for 2016?

A) $ 30,000.
B) $ 60,000.
C) $120,000.
D) $150,000.

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

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Question 2

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On January 1,2016,Jeans-R-Us Company awarded 15 million of its $1 par common shares to key personnel,subject to forfeiture if employment is terminated within three years.On the date of the grant,the stock had a market price of $3 per share. Required: (1. )Determine the total compensation cost pertaining to the restricted shares. (2. )Prepare the appropriate journal entry to record the award on January 1,2016. (3. )Prepare the appropriate journal entry to record compensation expense on December 31,2016.

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($ in millions) (1. )$3 x 15 shares = $45 (2. )No entry (3. ) 11ea906f_55b5_357d_a7a0_13635abf37b8_TB2444_00

Question 3

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Olde Corporation provides an executive stock option plan.Under the plan,the company granted options on January 1,2016,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 31,2017 (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 1,2016. (3. )Prepare the journal entry to record compensation expense on December 31,2016. (4. )Prepare the journal entry to record compensation expense on December 31,2017.

Sugarland Industries reported a net income of $750,750 on December 31,2016.At the beginning of the year,the company had 500,000 common shares outstanding.On April 1,the company sold 27,000 shares for cash.On August 31,the company issued 48,000 additional shares as part of a merger. Required: Compute Sugarland's net income that would produce a basic EPS of $2.00 per share for 2016.

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 2016,employees purchased 8 million shares;during this same period,the shares had a market price of $15 per share at the end of the year.Martin's 2016 pretax earnings will be reduced by:

The compensation associated with restricted stock units (RSUs) under a stock award plan is the number of shares represented by the RSUs multiplied by:

On January 2,2016,L Co.issued at face value $20,000 of 4% bonds convertible in total into 1,000 shares of L's common stock.No bonds were converted during 2016. Throughout 2016,L had 1,000 shares of common stock outstanding.L's 2016 net income was $2,000.L's income tax rate is 50%. No potential common shares other than the convertible bonds were outstanding during 2016. L's diluted earnings per share for 2016 would be:

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

Fully vested incentive stock options for 60,000 shares of common stock at an exercise price of $50 were outstanding at the beginning of 2016.The market price of the stock averaged $56 during the year. Required: If these options are exercised on March 1 of the current year,by how many shares will the options increase the weighted-average number of shares outstanding when calculating diluted earnings per share?

At December 31,2016 and 2015,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 2016 or 2015.Net income for 2016 was $500,000.For 2016,basic earnings per common share amounted to:

Why are earnings per share figures for prior years adjusted for stock splits and stock dividends when data from prior years is presented in comparative financial statements?

In computing diluted earnings per share,the treasury stock method is used for:

At December 31,2016,MedX Corporation had outstanding 200,000 shares of common stock.Also outstanding were 120,000 shares of preferred stock convertible into 64,000 common shares and $1,800,000 of 10% bonds convertible into 27,000 common shares MedX's net income for the year ended December 31,2016,is $1,040,000.The income tax rate is 40%.MedX paid dividends of $2 per share on its preferred stock during 2016. Required: Compute basic and diluted earnings per share for the year ended December 31,2016,considering possible antidilutive effects.

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

A company has cumulative preferred stock.When computing earnings per share,the current year's dividends not declared on the preferred stock should be:

Under its executive stock option plan,M Corporation granted options on January 1,2016,that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years,but not before December 31,2018 (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 were anticipated;however,unexpected turnover during 2017 caused the forfeiture of 5% of the stock options.Ignoring taxes,what is the effect on earnings in 2017?

Under its executive stock option plan,N Corporation granted options on January 1,2016,that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years,but not before December 31,2018 (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.Ignoring taxes,what is the effect on earnings in the year after the options are granted to executives?

Kramer Inc.had 95 million shares of common stock,1 million shares of 6%,$100 par,cumulative preferred stock,and 1 million shares of 8%,$100 par,noncumulative preferred stock outstanding at the end of 2015 and 2016.No dividends were declared or paid on common stock in either year.In 2016,a $3 million dividend was paid on the 6% preferred stock and a $4 million dividend was paid on the 8% preferred stock.Net income for 2016 was $300 million.The company's tax rate is 30%. Required: Compute basic earnings per share (rounded to 2 decimal places)for the year ended December 31,2016.

What is the entry to record the expiration of 10% of the options on December 31,2020?

Basic earnings per share ignores: