Question 1

Which of the following does not represent potential shares for an EPS calculation?

Accepted Answer

A)   Convertible preferred stock.
B)   Convertible bonds.
C)   Stock rights.
D)   Participating preferred stock.E) A) and D)
F) C) and D)

Question 2

The Peach Corporation provides restricted stock to certain executives. Under the plan, the company granted 30 million shares on January 1, 2018, which vest in four years. The fair value of the shares is $14. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the restricted stock.
2. Prepare the appropriate journal entry (if any) to record the award of restricted stock on January 1, 2018.
3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2018.

Accepted Answer

The answer of The Peach Corporation provides restricted stock to...

Question 3

Under its executive stock option plan, Z 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 are anticipated. The options expired in 2024 without being exercised. By what amount will Z's shareholder's equity be increased?

Accepted Answer

A)   $60 million.
B)   $270 million.
C)   $315 million.
D)   $330 million.E) All of the above
F) A) and B)

Question 4

Purple Cab Company had 50,000 shares of common stock outstanding on January 1, 2018. On April 1, 2018, 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 2018. What is the basic earnings per share (rounded) ?

Accepted Answer

A)   $4.10.
B)   $3.86.
C)   $3.60.
D)   $4.15.E) B) and D)
F) C) and D)

Question 5

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.
-Treasury stock method

Accepted Answer

A)  Assumption used for options, rights, and warrants.
B)  Dual presentation of EPS does not apply.
C)  Applies to both convertible debt and convertible equity securities.
D)  Approximation of EPS assuming potential common shares became common stock.
E)  Add after-tax interest to EPS numerator.F) C) and D)
G) B) and D)

Question 6

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

Accepted Answer

A)   At the end of the year.
B)   At the beginning of the year.
C)   On the declaration date.
D)   On the date of distribution.E) B) and C)
F) None of the above

Question 7

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

Accepted Answer

A)  Require(s)  compensation expense regardless of condition satisfaction.
B)  Date on or after which employees can buy stock with options.
C)  An important factor in option pricing models.
D)  Date on which options are awarded.
E)  The amount paid to convert the option into stock.F) A) and E)
G) All of the above

Question 8

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

Accepted Answer

A)  Expensed as compensation in the period earned
B)  Benefit period over which stock option compensation expense is spread.
C)  Paid-in capital effectively renamed under the fair value approach
D)  Shares given for achieving financial goals
E)  A right to buy shares of stock in the future.F) B) and C)
G) A) and E)

Question 9

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?

Accepted Answer

A)   2,075,000.
B)   2,282,500.
C)   2,475,000.
D)   2,620,000.E) A) and B)
F) None of the above

Question 10

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

Accepted Answer

A)  Require(s)  compensation expense regardless of condition satisfaction.
B)  Date on or after which employees can buy stock with options.
C)  An important factor in option pricing models.
D)  Date on which options are awarded.
E)  The amount paid to convert the option into stock.F) A) and B)
G) A) and C)

Question 11

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

Accepted Answer

A)  Require(s)  compensation expense regardless of condition satisfaction.
B)  Date on or after which employees can buy stock with options.
C)  An important factor in option pricing models.
D)  Date on which options are awarded.
E)  The amount paid to convert the option into stock.F) A) and E)
G) A) and D)

Question 12

During 2018, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2018. Falwell's net income for the year ended December 31, 2018, was $2.5 million. The income tax rate is 40%. Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2018.
-
What is Falwell's diluted earnings per share for 2018, rounded to the nearest cent?

Accepted Answer

A)   $3.14.
B)   $4.90.
C)   $4.34.
D)   Cannot determine from the given information.E) C) and D)
F) A) and C)

Question 13

On December 31, 2017, Vitners Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10).
February 28, 2018, issued an additional 36,000 shares of common stock
September 1, 2018, 9,000 shares were retired.
A 10% stock dividend was declared and distributed on July 1, 2018.
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 2015 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, 2018.

Accepted Answer

Basic EPS = ($ in 00...

Question 14

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 will Angel report as diluted earnings per share for 2018, rounded to the nearest cent?

Accepted Answer

A)   $6.43.
B)   $6.25.
C)   $6.22.
D)   None of these answer choices are correct.E) B) and C)
F) A) and C)

Question 15

Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2018, the company had issued 20 million executive stock options permitting executives to buy 20 million shares of stock for $25. 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:  Required:
Determine the compensation expense related to the options to be recorded each year for 2018-2020, assuming Pastner prepares its financial statements in accordance with International Financial Reporting Standards (IFRS).

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The compensation cost is allo...

Question 16

On December 31, 2017, Brisbane Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2018, Brisbane purchased 24,000 shares of common stock on the open market as treasury stock paying $40 per share. Brisbane sold 6,000 treasury shares on September 30, 2018, for $45 per share. Net income for 2018 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 $50 during 2018.
Required:
Compute Brisbane's basic and diluted earnings per share (rounded to 2 decimal places) for 2018.

Accepted Answer

Basic EPS
[$180,905 - (7% × $50 × 30,000...

Question 17

On January 1, 2018, Felix Austead Athletic Club (FAAC)  granted stock options to key executives exercisable for 500,000 shares of the company's common stock at $18 per share. The stock options are intended as compensation for the next four years. The options are exercisable within a four-year period beginning January 1, 2022, by the executives still in the employ of the company. No options were terminated during 2018, but the company anticipates 5% forfeitures over the life of the stock options. The market price of the common stock was $18 per share at the date of the grant. FAAC estimated the fair value of the options at $4 each. 1% of the options are forfeited during 2019 due to executive turnover. What amount should FAAC record as compensation expense for the year ended December 31, 2019, assuming FAAC chooses the option not to estimate forfeitures?

Accepted Answer

A)   $480,000.
B)   $500,000.
C)   $2,160,000.
D)   $2,250,000.E) All of the above
F) A) and B)

Question 18

A company is said to have a complex capital structure if:

Accepted Answer

A)   the company has preferred stock outstanding at the end of the period.
B)   the company has potential common shares outstanding at the end of the period.
C)   the company's capital structure includes more debt than shareholders' equity.
D)   the company's capital structure includes more shareholders' equity than debt.E) B) and C)
F) A) and B)

Question 19

Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2018, options were granted for 60,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2021, and expire December 31, 2022.
- Each option has a fair value of $1 based on an option pricing model. What is the entry to record the expiration of 10% of the options on December 31, 2022?

Accepted Answer

A)     Paid-in capital_stock options 6,000 Paid-in capital_expired stock options 6,000\begin{array}{|l|l|l|}\hline 	ext { Paid-in capital\_stock options } & 6,000 & \\hline 	ext { Paid-in capital\_expired stock options } & & 6,000 \\hline\end{array} Paid-in capital_stock options  Paid-in capital_expired stock options ​6,000​6,000​​ 
B)     Paid-in capital_stock options 6,000 Retained earnings 6,000\begin{array}{|l|l|l|}\hline 	ext { Paid-in capital\_stock options } & 6,000 & \\hline 	ext { Retained earnings } & & 6,000 \\hline\end{array} Paid-in capital_stock options  Retained earnings ​6,000​6,000​​ 
C)     Paid-in capital-stock options 6,000 Compensation expense 6,000\begin{array}{|l|l|l|}\hline 	ext { Paid-in capital-stock options } & 6,000 & \\hline 	ext { Compensation expense } & & 6,000 \\hline\end{array} Paid-in capital-stock options  Compensation expense ​6,000​6,000​​ 
D)     Stock options receivable 30,000 Common stock 6,000 Paid-in capital_excess of par 27,000\begin{array}{|l|r|r|}\hline 	ext { Stock options receivable } & 30,000 & \\hline 	ext { Common stock } & & 6,000 \\hline 	ext { Paid-in capital\_excess of par } & & 27,000 \\hline\end{array} Stock options receivable  Common stock  Paid-in capital_excess of par ​30,000​6,00027,000​​E) C) and D)
F) B) and D)

Question 20

Contingently issuable shares may be included in:

Accepted Answer

A)   Basic EPS.
B)   Diluted EPS.
C)   Basic EPS and Diluted EPS.
D)   None of these answer choices are correct.E) A) and B)
F) A) and C)

Exam 19: Share-Based Compensation and Earnings Per Share

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

Correct Answer
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Basic EPS
[$180,905 - (7% × $50 × 30,000...
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If a stock dividend were distributed, when calculating the current year's EPS, the shares distributed are treated as having been issued:

Correct Answer
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The compensation cost is allo...
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A company is said to have a complex capital structure if:

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

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

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

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Contingently issuable shares may be included in:

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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. -Treasury stock method

Correct Answer
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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?

Correct Answer
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Which of the following does not represent potential shares for an EPS calculation?

Correct Answer
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Basic EPS = ($ in 00...
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Exam 19: Share-Based Compensation and Earnings Per Share

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBasic EPS[$180,905 - (7% × $50 × 30,000...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified The compensation cost is allo...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A company is said to have a complex capital structure if:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Contingently issuable shares may be included in:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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. -Treasury stock method

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following does not represent potential shares for an EPS calculation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBasic EPS = ($ in 00...View AnswerShow Answer

Correct Answer
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Correct Answer
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Basic EPS
[$180,905 - (7% × $50 × 30,000...
View Answer

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Correct Answer
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The compensation cost is allo...
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Basic EPS = ($ in 00...
View Answer