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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 81

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

A) Stock warrants.
B) Stock splits.
C) Reverse stock splits.
D) Convertible preferred stock.

E) All of the above
F) A) and D)

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Question 82

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

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Question 83

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Pastore Inc. granted options for 1 million shares of its $1 par common stock at the beginning of the current year. The exercise price is $35 per share, which was also the market value of the stock on the grant date. The fair value of the options was estimated at $8 per option. If the options have a vesting period of five years, what would be the balance in "Paid-in Capital-Stock Options" three years after the grant date?

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. -Bonuses

Restricted stock units (RSUs) :

Salle Services issued $300 million of 6% bonds in 2016. 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, 2018, balance sheet. Required: When calculating diluted EPS at December 31, 2018, what will be the net increase in the denominator of the EPS fraction? Explain.

The following information pertains to J Company's outstanding stock for 2018: What is the number of shares J should use to calculate 2018 basic earnings per share?

Compare the concepts of basic and diluted earnings per share with respect to their calculation.

On January 1, 2018, Shamu Corporation had 100,000 shares of common stock outstanding. The following transactions occurred during 2018: The following transactions occurred during 2019: 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 2019.

On October 1, 2018, Iona Barr issued stock options for 300,000 shares to a division manager. The options have an estimated fair value of $3 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Barr's stock price increases by 6% in three years. Barr initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in each of the next three years?

When a company's income statement includes discontinued operations, the company should report per share information on:

Nonconvertible bonds affect the calculation of:

If a stock split occurred, when calculating the current year's EPS, the shares are treated as issued:

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

The single accounting number in the annual report that receives the most attention by investors is:

On January 1, 2018, Albacore Company had 300,000 shares of its common stock issued and outstanding. Albacore issued a 10% stock dividend on July 1, 2018. On October 1, 2018, Albacore retired 12,000 of its common shares. When calculating basic earnings per share for 2018, what is the appropriate number of shares for Albacore to use in the denominator of the EPS fraction?

Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2018, 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 (IFRS) , what is the compensation expense related to the options to be recorded in 2019?

How many types of potential common shares must a corporation have in order to be said to have a complex capital structure?

The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?

M, Inc. supplies consumer products used in the United States and other markets. In its 2018 Annual Report to Shareholders, M, Inc. disclosed the following note about its EPS: Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporates the incremental shares issuable upon the assumed exercise of stock options and upon the assumed conversion of the Company's Convertible Notes in fiscal 2018 as if conversion to common shares had occurred at the beginning of the fiscal year. Earnings have also been adjusted for interest expense on the Convertible Notes in fiscal 2018. Explain why M mentioned the adjustment in the last sentence of the disclosure note.