Exam 19: Share-Based Compensation and Earnings Per Share

During 2013, 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 2013 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 2013, the amount to be used in the numerator is:

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:

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

Cracker Company had 2 million shares of common stock outstanding all through 2012. On April 1, 2013, an additional 100,000 shares were sold and issued. On September 30, 2013, Cracker declared a 2-for-1 stock split. Net income in 2013 and 2012 was $10 million and $8 million, respectively. In the 2013 comparative financial statements, EPS (rounded) would be reported as follows:

Basic earnings per share ignores:

When a company's only potential common shares are convertible bonds:

Which is the correct entry to record compensation expense for the year 2013?

Basic earnings per share is computed using:

Blue Cab Company had 50,000 shares of common stock outstanding on January 1, 2013. On April 1, 2013, 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 $13 while the average price for the year was $12. The company reported net income in the amount of $269,915 for 2013. What is the diluted earnings per share (rounded)?

At the end of 2013, 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 2013.

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?

What is Falwell's basic earnings per share for 2013, rounded to the nearest cent?

At December 31, 2013 and 2012, 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 2013 or 2012. Net income for 2013 was $500,000. For 2013, basic earnings per common share amounted to:

What is Angel's basic earnings per share for 2013, rounded to the nearest cent?

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

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

On January 1, 2013, Shamu Corporation had 100,000 shares of common stock outstanding. The following transactions occurred during 2013: The following transactions occurred during 2014: Required: Calculate Shamu's basic earnings per share (rounded to 2 decimal places) for both years for presentation in comparative financial statements that will be prepared at the end of 2014.

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

Under its executive stock option plan, Q Corporation granted options on January 1, 2013, 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, 2015 (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 2014 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2015?

Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2013, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $30. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting). The fair value of the options is estimated as follows: Assuming Yellow prepares its financial statements in accordance with International Financial Reporting Standards, what is the compensation expense related to the options to be recorded in 2014?