Chapter 16-Computational

On December 31, 2017, Houser Company granted some of its executives options to purchase 150,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $3,000,000. The options become exercisable on January 1, 2018, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2018. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2017, as a result of this transaction under the fair value method? a. $3,000,000 decrease b. $1,000,000 decrease c. $0 d. $1,000,000 increase

$0

On January 1, 2018, Evans Company granted Tim Telfer, an employee, an option to buy 5,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $37,500. Telfer exercised his option on September 1, 2018, and sold his 5,000 shares on December 1, 2018. Quoted market prices of Evans Co. stock during 2018 were January 1 $25 per share September 1 $30 per share December 1 $34 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2018 on its books in the amount of a. $45,000. b. $37,500. c. $12,500. d. $ 7,500.

$12,500

On December 31, 2017, Kessler Company granted some of its executives options to purchase 60,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $360,000. At December 31, 2018, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method? a. $120,000 increase b. $0 c. $120,000 decrease d. $360,000 decrease

$120,000 decrease

On January 1, 2018, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $6,000. Wine exercised his option on October 1, 2018 and sold his 1,000 shares on December 1, 2018. Quoted market prices of Ellison Co. stock in 2018 were: July 1 $30 per share October 1 $36 per share December 1 $40 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense for 2018 on its books in the amount of a. $6,000. b. $2,000. c. $1,500. d. $0.

$2,000

On January 1, 2018 Reese Company granted Jack Buchanan, an employee, an option to buy 300 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $4,800. Buchanan exercised his option on September 1, 2018, and sold his 300 shares on December 1, 2018. Quoted market prices of Reese Co. stock during 2018 were: January 1 $40 per share September 1 $48 per share December 1 $54 per share The service period is for two years beginning January 1, 2018. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2018 on its books in the amount of a. $0. b. $2,400. c. $4,800 d. $5,600

$2,400

On January 1, 2018, Trent Company granted Dick Williams, an employee, an option to buy 400 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5,400. Williams exercised his option on September 1, 2018, and sold his 400 shares on December 1, 2018. Quoted market prices of Trent Co. stock during 2018 were: January 1 $30 per share September 1 $36 per share December 1 $40 per share The service period is for two years beginning January 1, 2018. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2018 on its books in the amount of a. $6,000. b. $5,400. c. $2,700. d. $0.

$2,700

Weiser Corp. on January 1, 2015, granted stock options for 60,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $630,000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2019. The amount of compensation expense Weiser should record for 2017 under the fair value method is a. $0. b. $105,000. c. $210,000. d. $315,000.

$210,000

On June 30, 2015, Norman Corporation granted compensatory stock options for 75,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2019. On January 4, 2018, when the market price of the stock was $42 per share, all 75,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2017 using the fair value method? a. $0. b. $360,000. c. $450,000. d. $900,000.

$360,000

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2020 if Dunbar Co.'s net income in 2019 is $500,000; in 2018 Dunbar Co.'s net income is $520,000. Beaty Inc. has net income for 2018 of $450,000 and has an average number of common shares outstanding for 2018 of 100,000 shares. What should Beaty report as diluted earnings per share for 2018? a. $5.00 b. $4.50 c. $4.09 d. $3.76

$4.09

At December 31, 2017 Pine Company had 200,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On February 10, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Pine declared a 100% stock dividend on its common stock. Net income for 2018 was $960,000. In its 2018 financial statements, Pine's 2018 earnings per common share should be a. $4.54. b. $4.27. c. $2.25. d. $1.33.

$4.54

Grant, Inc. had 80,000 shares of treasury stock ($10 par value) at December 31, 2017, which it acquired at $11 per share. On June 4, 2018, Grant issued 40,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2017, $15 at June 4, 2018, and $18 at December 31, 2018. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2018? a. $280,000. b. $360,000. c. $440,000. d. $480,000.

$440,000

63. On December 31, 2017, Gonzalez Company granted some of its executives options to purchase 180,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,350,000. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. At December 31, 2018 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method? a. $ 450,000 increase. b. $1,350,000 decrease. c. $ 450,000 decrease. d. $0.

$450,000 decrease

On June 30, 2018, Yang Corporation granted compensatory stock options for 25,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $100,000. The options are exercisable beginning January 1, 2020, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2021. On January 4, 2020, when the market price of the stock was $36 per share, all options for the 25,000 shares were exercised. The service period is for two years beginning January 1, 2018. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2018? a. $100,000 b. $50,000 c. $23,438 d. $0

$50,000

In order to retain certain key executives, Jensen Corporation granted them incentive stock options on December 31, 2017. 100,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2018 $46 per share December 31, 2019 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,000,000. What amount of compensation expense should Jensen recognize as a result of this plan for the year ended December 31, 2018 under the fair value method? a. $500,000. b. $1,000,000. c. $1,100,000. d. $3,500,000.

$500,000

On January 1, 2017, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 120,000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. *75. What amount of compensation expense should Korsak recognize for the year ended December 31, 2017? a. $ 360,000 b. $ 540,000 c. $ 450,000 d. $2,160,000

$540,000

On January 1, 2017, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 120,000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. *77. On December 31, 2019, 25,000 SARs are exercised by executives. What amount of compensation expense should Korsak recognize for the year ended December 31, 2019? a. $570,000 b. $390,000 c. $1,170,000 d. $156,000

$570,000

On January 1, 2018, Ritter Company granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2021 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $180,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2018 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $36,000. c. $40,000. d. $60,000.

$60,000

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2017. 150,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2018 $46 per share December 31, 2019 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2018 under the fair value method? a. $2,625,000. b. $1,650,000. c. $1,500,000. d. $ 750,000.

$750,000

The following information is available for Barone Corporation: January 1, 2018 Shares outstanding 4,000,000 April 1, 2018 Shares issued 640,000 July 1, 2018 Treasury shares purchased 240,000 October 1, 2018 Shares issued in a 100% stock dividend 4,400,000 The number of shares to be used in computing earnings per common share for 2018 is a. 9,041,600. b. 8,760,000. c. 8,720,000. d. 5,460,000.

8,720,000

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a a. credit of $217,600 to Paid-in Capital in Excess of Par. b. credit of $192,000 to Paid-in Capital in Excess of Par. c. credit of $89,600 to Premium on Bonds Payable. d. loss of $12,800.

credit of $217,600 to Paid-in Capital in Excess of Par.