Exam 19: Share-Based Compensation and Earnings Per Share

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

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 2012 and 2013. No dividends were declared or paid on common stock in either year. In 2013, 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 2013 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, 2013.

On December 31, 2012, Jackson Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2013, Jackson purchased 24,000 shares of common stock on the open market as treasury stock for $35 per share. Jackson sold 6,000 treasury shares on September 30, 2013, for $37 per share. Net income for 2013 was $180,905. Also outstanding during the year were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40. The market price of the common shares averaged $39 during 2013. Required: Compute Jackson's basic and diluted earnings per share (rounded to 2 decimal places) for 2013.

Salle Services issued $300 million of 6% bonds in 2011. The bonds are convertible into 60 million shares of its no par common stock. Salle elected the option to report the bonds at fair value, with changes in fair value reported in earnings. As a result the bonds are reported at $312 million in the December 31, 2013, balance sheet. Required: When calculating diluted EPS at December 31, 2013, what will be the net increase in the denominator of the EPS fraction? Explain.

On December 31, 2012, Beta Company had 300,000 shares of common stock issued and outstanding. Beta issued a 5% stock dividend on June 30, 2013. On September 30, 2013, 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 2013?

Basic and diluted earnings per share data is required to be reported:

The Santiago Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2013, 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, 2016 (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, 2013. 3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2013.

On January 1, 2013, 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 averaged $9 per share during the quarter ending on March 31, 2013. There was no change in the 100,000 shares of outstanding common stock during the quarter ended March 31, 2013. 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:

On January 1, 2013, 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, 2013. (3.) Prepare the appropriate journal entry to record compensation expense on December 31, 2013. (4.) Prepare the appropriate journal entry to record compensation expense on December 31, 2014. (5.) Prepare the appropriate journal entry to record compensation expense on December 31, 2015. (6.) Prepare the appropriate journal entry to record the lifting of restrictions on December 31, 2015.

When a company's income statement includes discontinued operations and a gain on the sale of machinery, the company should report per share information on:

Purple 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 average market price of common stock was $12. The company reported net income in the amount of $269,915 for 2013. What is the basic earnings per share (rounded)?

Ignatius Corporation had 7 million shares of common stock outstanding during the current calendar year. It issued ten thousand $1,000, convertible bonds on January 1. Each bond is convertible into 50 shares of common stock. The bonds were issued at face amount and pay interest quarterly at an annual rate of 10%. On June 30, Ignatius issued 100,000 shares of $100 par 6% cumulative preferred stock. Dividends are declared and paid semiannually. Ignatius has an effective tax rate of 40%. Ignatius would report the following EPS data (rounded) on its net income of $20 million:

GAAP allows companies to treat each individual vesting date as a separate award. If Pastner uses that approach, the calculation is:

To encourage employee ownership of the company's common shares, KL 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 15% discount. During May, employees purchased 10,000 shares at a time when the market price of the shares on the New York Stock Exchange was $15 per share. KL will record compensation expense associated with the May purchases of:

On December 31, 2012, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10). On February 28, 2013, Merlin issued an additional 36,000 shares of common stock. A 10% stock dividend was declared and distributed on July 1, 2013. On September 1, 2013, 9,000 shares were retired. At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of common stock (adjusted for the stock dividend). The exercise price was $18. The market price of the common stock averaged $20 during the year. Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2010 and convertible into 50,000 common shares (adjusted for the stock dividend). Net income was $900,000. The tax rate for the year was 40%. Required: Compute basic and diluted EPS (rounded to 2 decimal places) for the year ended December 31, 2013.

Getaway Travel Company reported net income for 2013 in the amount of $50,000. During 2013, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2013. A 2-for-1 stock split was granted on July 5, 2013. What is the 2013 basic earnings per share (rounded)?

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

On January 1, 2013, Algerian Delivery had 100,000 shares of common stock outstanding. The following transactions occurred during 2013: Required: Calculate Algerian Delivery's basic earnings per share for the year ended December 31, 2013.

Flyaway Travel Company reported net income for 2013 in the amount of $90,000. During 2013, Flyaway declared and paid $2,125 in cash dividends on its nonconvertible preferred stock. Flyaway also paid $10,000 cash dividends on its common stock. Flyaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on April 1, 2013. What is 2013 basic earnings per share?

Under its executive stock option plan, Z 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 are anticipated. The options expired in 2019 without being exercised. By what amount will Z's shareholder's equity be increased?