SA12-ch19

Under its restricted stock award plan, Kilian Corp. grants 100,000 of its $1 par value common shares to certain executives on January 1, Year 1. The award is contingent on continued employment for 4 years. Shares have a current market value of $10 per share. On December 31, Year 2, 15% of the share awards were forfeited. Kilian should credit

compensation expense for $75,000. Reason: ((100,000 x 10)/4) x 2 years x 15%

Under U.S. GAAP, a deferred tax asset related to stock option plans is recorded when Blank______ and reversed when Blank______.

compensation expense is recognized; the options are exercised

Munster Company issued options to a key executive that are contingent on the company achieving a 10% increase in sales revenue within the next 12 months. The company believes that it is likely that this target will be achieved and accrues $5 million in related compensation expense. After 9 months, the company estimates that it is possible, but not likely that the target will be achieved. Based on this new estimate, the company must

credit compensation expense for $5 million.

When a company revises its estimate of total compensation because the expected probability changes, the company should record the effect of the change in the ______ period.

current or present

If all three conditions for simplifying employee share purchase plan accounting are met, the related share purchase:

does not result in compensation expense

When stock options expire, compensation expense

is not affected.

Compensation expense related to share-based awards is recognized regardless of whether the market-related conditions are met because

option-pricing models already implicitly reflect market conditions.

On January 1, Year 1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. The estimated value of the options is $6 per option. During Year 4, 9,000 stock options were exercised. In Year 5, the remaining stock options expire. When the options expire, Utta should credit

paid-in capital—expired stock options for $6,000. Reason: 1,000 x $6

Muller Company sponsors a performance-based stock option plan. When the options are granted, Muller should recognize related compensation expense if it is ______ that the performance target will be met.

probable

Wald Corp. allows its employees to purchase shares at a 10% discount. During the current month, employees purchased 1,000 shares for $22.50 per share. Wald should recognize compensation expense of

$2,500. Reason: (($22.50/90% = $25.00) - $22.50) x 1,000

What conditions must be met by employee share purchase plans to allow for uncomplicated recognition of the share purchases and no compensation expense to be recognized? (Select all that apply.)

Employees must decide within 1 month of the share price being fixed whether to buy shares. Substantially all employees can participate in the plan. Discounts on the share purchase price do not exceed 5%.

Which of the following accounting treatments is acceptable for recognizing compensation expense related to stock options that vest over several years (graded vesting options)?

Recognize total compensation expense over a weighted-average time period.

True or false: Accounting for share-based plans depends on the type of condition that must be fulfilled by the employee to achieve the share-based award.

True Reason: The accounting will depend on whether the condition is performance-based or market-based.

Under its restricted stock award plan, Katrin Corp. grants 100,000 of its $1 par value common shares to certain executives on January 1, Year 1. The award is contingent on continued employment for 4 years. Shares have a current market value of $10 per share. On December 31, Year 3, 10% of the share awards were forfeited. Katrin should credit

compensation expense for $75,000. Reason: ((100,000 x 10)/4) x 3 years x 10%

Maggie Company issued options valued at $1 million to one of its executives that are contingent on the company achieving a 10% increase in sales revenue within the next 12 months. The company believes that it is possible that this target will be achieved. After 6 months, the company estimates that it is probable that the target will be achieved. Based on this new estimate, the company must

debit compensation expense for $1 million.

On January 1, Year 1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. The estimated value of the options is $6 per option. During Year 4, 9,000 stock options were exercised. In Year 5, the remaining stock options expire. Utta should recognize the expiration by debitingl

paid-in capital—stock options for $6,000. Reason: 1,000 x $6

Which of the following is true under IFRS with respect to the recognition of compensation expense for graded vesting options?

the straight-line method is prohibited