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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 61

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Gear Corporation had the following common stock record during the current calendar year: What is the number of shares to be used in computing basic EPS?

A) 5,500,000.
B) 5,557,500.
C) 5,555,000.
D) 5,050,000.

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

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Question 62

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On January 1, 2009, Jeans-R-Us Company awarded 15 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within 3 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, 2009. (3.) Prepare the appropriate journal entry to record compensation expense on December 31, 2009. (4.) Prepare the appropriate journal entry to record compensation expense on December 31, 2010. (5.) Prepare the appropriate journal entry to record compensation expense on December 31, 2011. (6.) Prepare the appropriate journal entry to record the lifting of restrictions on December 31, 2011.

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Question 63

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Which of the following is a correct statement concerning earnings per share?

Nonconvertible bonds affect the calculation of:

During 2009, Quattro entered into the following transactions relating to shareholders' equity. The corporation was authorized to issue 20 million common shares, $1 par per share. Required: Compute basic and diluted EPS for 2009. Net income for 2009 was $\$ 110$ million. Jan. 2: $\quad$ Issued 10 million common shares for cash. Jan. 3: $\quad$ Entered an agreement with the company president to issue up to 2 million additional $\quad$$\quad$$\quad$ shares of common stock in 2009 based on the earnings of Quattro in 2009. If net $\quad$$\quad$$\quad$ income exceeds $\$ 100$ million, the president will receive 1 million shares; 2 million $\quad$$\quad$$\quad$ shares if net income exceeds $\$ 120$ million.

When computing diluted earnings per share, stock options:

A disclosure note from E Corp.'s 2009 annual report is shown below: Employee Stock Purchase Plan. We have an employee stock purchase plan for all eligible employees. Compensation expense for the employee stock purchase plan is recognized in accordance with SFAS No.123(R). Shares of our common stock may be purchased by employees at three-month intervals at 85% of the fair market value on the last day of each three-month period. Employees may purchase shares having a value not exceeding 10% of their gross compensation during an offering period. Employees purchased the following shares: At June30, 2009, 150million shares were reserved for future issuance. Required: Describe the way "Compensation expense for the employee stock purchase plan is recognized in accordance with SFAS No.123(R)" by E. Include in your explanation the journal entry that summarizes employee share purchases during 2009. $\begin{array}{lrrrr}\text { (Shares in millions) } & \mathbf{2 0 0 9} & \mathbf{2 0 0 8} & \mathbf{2 0 0 7} \\\text { Shares purchased } & \mathbf{1 5} & 14 & 12 \\\text { Average price paid per share } & \mathbf{\$ 2 5 . 2 5} & \$ 23.92 & \$ 23.83\end{array}$

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

Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt.

What is the total compensation cost for this plan?

When we take into account the dilutive effect of stock options, rights, and warrants in the calculation of EPS, the method used is called the:

During 2009, M Co. had the following two classes of stock issued and outstanding for the entire year:  400,000 shares of common stock, $1 par.  2,000 shares of 4% preferred stock, $100 par, convertible share for share into common stock. M's 2009 net income was $1,800,000, and its income tax rate for the year was 30%. In the computation of diluted earnings per share for 2009, the amount to be used in the numerator is

Burnet Company had 30,000 shares of common stock outstanding on January 1, 2009. On April 1, 2009, the company issued 15,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The end-of-year market price of common stock was $8 while the average for the year was $9. The company reported net income in the amount of $189,374 for 2009. What is the effect of the options?

Under its executive stock option plan, Z Corporation granted options on January 1, 2009, 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, 2011 (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 expired in 2017 without being exercised. By what amount will Z's shareholder's equity be increased?

Morrison Corporation had the following common stock record during the current calendar year: What is the number of shares to be used in computing basic EPS?

If a stock dividend were distributed, when calculating the current year's EPS, the shares distributed are treated as having been issued:

JD Co. is a calendar-year firm with 600 million common shares outstanding throughout 2009 and 2010. As part of its executive compensation plan, at January 1, 2008, the company had issued 60 million executive stock options permitting executives to buy 30 million shares of stock for $10 within the next eight years, but not prior to January 1, 2011. The fair value of the options was estimated on the grant date to be $3 per option. In 2009, JD began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 30 million restricted common shares to senior executives at January 1, 2009. The shares vest four years later. The fair value of the stock was $12 per share on the grant date. The average price of the common shares was $12 and $15 during 2009 and 2010, respectively. The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $240 million and $300 million in 2009 and 2010, respectively. Its income tax rate is 40%. Required: 1. Determine basic and diluted earnings per share for JD in 2009. 2. Determine basic and diluted earnings per share for JD in 2010.

Baldwin Company had 40,000 shares of common stock outstanding on January 1, 2009. On April 1, 2009 the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 10,000 shares exercisable at $10 that had not been exercised by its executives. The end-of-year market price of common stock was $11 while the average price for the year was $12. What number of shares of stock should be used in computing diluted earnings per share?

Blue Cab Company had 50,000 shares of common stock outstanding on January 1, 2009. On April 1, 2009, the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The end-of-year market price of common stock was $11 while the average price for the year was $12. The company reported net income in the amount of $269,915 for 2009. What is the diluted earnings per share?

What is Rudyard's diluted EPS?