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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 51

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The result of a stock split is:

A) A larger number of more valuable shares.
B) An increase in corporate assets.
C) An increase in shareholders' equity.
D) A larger number of less valuable shares.

E) B) and C)
F) A) and C)

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Question 52

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M,Inc. ,supplies consumer products used in the United States and other markets.In its 2016 Annual Report to Shareholders,M,Inc. ,disclosed the following note about its EPS: Basic earnings per share are computed using the weighted average number of common shares outstanding during the period.Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options and upon the assumed conversion of the Company's Convertible Notes in fiscal 2016 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 2016. Explain why M mentioned the adjustment in the last sentence of the disclosure note.

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In determining its diluted EPS,M assumed...

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Question 53

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Taxon Corp.granted restricted stock units (RSUs) representing 30 million of its $1 par common shares to executives,subject to forfeiture if employment is terminated within three years.After the recipients of the RSUs satisfy the vesting requirement,the company will distribute the shares.The common shares had a market price of $8 per share on the grant date.Ignoring taxes,what is the effect on earnings in the year after the shares are granted to executives?

Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock.

Morrison 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?

Under U.S.GAAP,a deferred tax asset for stock options:

Stock options do not affect the calculation of:

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

Burnet Company had 30,000 shares of common stock outstanding on January 1,2016.On April 1,2016,the company issued 15,000 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 $9.The company reported net income in the amount of $189,374 for 2016.What is the effect of the options?

On January 1,2016,G Corp.granted stock options to key employees for the purchase of 80,000 shares of the company's common stock at $25 per share.The options are intended to compensate employees for the next two years.The options are exercisable within a four-year period beginning January 1,2018,by the grantees still in the employ of the company.No options were terminated during 2016,but the company does have an experience of 4% forfeitures over the life of the stock options.The market price of the common stock was $31 per share at the date of the grant.G Corp.used the Binomial pricing model and estimated the fair value of each of the options at $10.What amount should G charge to compensation expense for the year ended December 31,2016?

Zeba Company granted 27 million of its no par common shares to executives,subject to forfeiture if employment is terminated within three years.Zeba's common shares have a market price of $10 per share on January 1,2015,the grant date. Required: When calculating diluted EPS at December 31,2016,what will be the net increase in the denominator of the EPS fraction if the market price of the common shares averaged $10 during 2016?

Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS.

A primary goal of earnings per share determination is:

On January 1,2016,Blue Inc.issued stock options for 200,000 shares to a division manager.The options have an estimated fair value of $6 each.To provide additional incentive for managerial achievement,the options are not exercisable unless divisional revenue increases by 6% in three years.Blue initially estimates that it is not probable the goal will be achieved,but in 2017,after one year,Blue estimates that it is probable that divisional revenue will increase by 6% by the end of 2018.Ignoring taxes,what is the effect on earnings in 2017?

Paul Company had 100,000 shares of common stock outstanding on January 1,2016.On September 30,2016,Paul sold 48,000 shares of common stock for cash.Paul also had 10,000 shares of convertible preferred stock outstanding throughout 2016.The preferred stock is $100 par,6%,and is convertible into 3 shares of common for each share of preferred.Paul also had 500,8%,convertible bonds outstanding throughout 2016.Each $1,000 bond is convertible into 30 shares of common stock.The bonds sold originally at face value.Reported net income for 2016 was $300,000 with a 40% tax rate.Common shareholders received $2 per share dividends after preferred dividends were paid in 2016. Required: Compute basic and diluted earnings per share (rounded to 2 decimal places)for 2016.

On December 31,2015,the Bennett Company had 100,000 shares of common stock issued and outstanding.On July 1,2016,the company sold 20,000 additional shares for cash.Bennett's net income for the year ended December 31,2016,was $650,000.During 2016,Bennett declared and paid $89,000 in cash dividends on its nonconvertible preferred stock.What is the 2016 basic earnings per share?

Use the following to answer questions In its 2016 Annual Report to shareholders,V Co.had the following disclosure note about its EPS: NOTE 9 - EARNINGS PER SHARE: The following represents the reconciliation from basic earnings per share to diluted earnings per share.Options to purchase 8.3 million and 9.7 million shares of common stock were outstanding at May 31,2016 and May 31,2015,respectively,but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares and,therefore,the effect would be antidilutive.No such antidilutive options were outstanding at May 31,2014. -How are outstanding stock options and awards taken into account in computing diluted EPS for V Co.?

Cracker Company had 2 million shares of common stock outstanding all through 2015.On April 1,2016,an additional 100,000 shares were sold and issued.On September 30,2016,Cracker declared a 2-for-1 stock split.Net income in 2016 and 2015 was $10 million and $8 million,respectively.In the 2016 comparative financial statements,EPS (rounded)would be reported as follows:

On December 31,2015,Beta Company had 300,000 shares of common stock issued and outstanding.Beta issued a 5% stock dividend on June 30,2016.On September 30,2016,40,000 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 2016?

The compensation associated with restricted stock under a stock award plan is: