Exam 19: Share-Based Compensation and Earnings Per Share

Baldwin Company had 40,000 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 10,000 shares exercisable at $10 that had not been exercised by its executives. The average market price of common stock for the year was $12. What number of shares of stock (rounded) should be used in computing diluted earnings per share?

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

Preferred dividends are subtracted from earnings when computing basic earnings per share whether or not the dividends are declared or paid if the preferred stock is:

Olde Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2013, 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, 2014 (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, 2013. (3.) Prepare the journal entry to record compensation expense on December 31, 2013. (4.) Prepare the journal entry to record compensation expense on December 31, 2014.

If a company's capital structure includes convertible bonds, diluted EPS might be reduced even if the bonds are not actually converted during the year.

On January 1, 2013, Oliver Foods issued stock options for 40,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Oliver Foods' stock price increases by 5% in four years. Oliver Foods initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in each of the next four years?

When recognizing compensation under a stock option plan, unanticipated forfeitures are treated as:

On December 31, 2012, the Bennett Company had 100,000 shares of common stock issued and outstanding. On July 1, 2013, the company sold 20,000 additional shares for cash. Bennett's net income for the year ended December 31, 2013, was $650,000. During 2013, Bennett declared and paid $89,000 in cash dividends on its nonconvertible preferred stock. What is the 2013 basic earnings per share?

Which of the following statements is true regarding share appreciation rights (SAR) payable in cash?

Rice Inc. had 420 million shares of common stock and 1 million shares of 6%, $200 par, cumulative preferred stock outstanding at the end of 2012 and 2013. No dividends were declared or paid on either class of stock in either year. Net income for 2013 was $398.4 million. The company's tax rate is 30%. Required: Compute basic earnings per share for the year ended December 31, 2013.

Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2013, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20 per share on the award date. Required: (1.) Determine the total compensation cost from these 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.) Suppose a 15% forfeiture rate was expected prior to vesting. Determine the total compensation cost, assuming the company follows the fair value approach and chooses to anticipate forfeitures at the grant date.

Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements.

During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into 10 shares of common. What is diluted EPS (rounded)?

Woolery, Inc., had 50,000 shares of common stock outstanding at January 1, 2013. On March 31, 2013, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of 6% convertible bonds outstanding throughout the year. The bonds are convertible into 40,000 shares of common stock. Net income for the year was $350,000. The tax rate is 35%. Required: Compute basic and diluted earnings per share (rounded to 2 decimal places) for the year ended December 31, 2013.

The compensation associated with executive stock option plans is:

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?

Dublin Inc. had the following common stock record during the current calendar year: A 10% stock dividend was paid on December 1. What is the number of shares to be used in computing basic EPS?

Stock options do not affect the calculation of: