Exam 19: Share-Based Compensation and Earnings Per Share

At December 31, 2018 and 2017, 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 2018 or 2017. Net income for 2018 was $500,000. For 2018, basic earnings per common share amounted to:

For a firm with a simple capital structure, EPS is:

DJ Co. is a calendar-year firm with 120 million common shares outstanding throughout 2018. As part of its executive compensation plan, at January 1, 2017, the company had issued 12 million executive stock options permitting executives to buy 12 million shares of stock for $10 each within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $3 per option. The stock options qualify for tax purposes as an incentive plan. The company's net income was $480 million in 2018. Its income tax rate is 40%. The average market price of the stock during 2018 was $12 per share. Required: Determine basic and diluted earnings per share (rounded to two decimal places) for DJ in 2018.

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 2018, 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 2018 pretax earnings will be reduced by:

The most important accounting objective for executive stock options is:

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

When the income statement includes discontinued operations, which amounts require per share presentation?

What is the advantage of stock appreciation rights over stock options?

Executive stock options should be reported as compensation expense:

Burns Company reported $752.4 million in net income in 2018. On January 1, 2018, the company had 400 million shares of common stock outstanding. On March 1, 2018, 24 million new shares of common stock were sold for cash. On June 1, 2018, the company's common stock split 2 for 1. On July 1, 2018, 8 million shares were reacquired as treasury stock. Required: Compute Burns' basic earnings per share for the year ended December 31, 2018.

When calculating diluted earnings per share, stock options:

Why are preferred dividends deducted from net income when calculating EPS?

Under its executive stock option plan, M Corporation granted options on January 1, 2018, 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, 2020 (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 2019 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2019?

During 2018, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2018. On January 1, 2017, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into five common shares. Angel's net income for the year ended December 31, 2018, was $6 million. The income tax rate is 20%. - What is Angel's basic earnings per share for 2018, rounded to the nearest cent?

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

Morrison Corporation had the following common stock record during the current calendar year: Outstanding-January 1 2,000,000 Additional shares issued 3/31 100,000 Distributed a 10\% stock dividend on 6/30 Additional shares issued 9/30 100,000 - What is the number of shares to be used in computing basic EPS?

The compensation associated with restricted stock under a stock award plan is:

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

Olde Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2018, 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, 2019 (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, 2018. (3.) Prepare the journal entry to record compensation expense on December 31, 2018. (4.) Prepare the journal entry to record compensation expense on December 31, 2019.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Diluted EPS