Intermediate 3 chapter 19 & 20

Which of the following are among the factors that must be considered in order to estimate the total compensation associated with stock options?

---expected dividends on the underlying stock ---expected risk-free rate of return during the option term ---expected volatility of the stock price

complex capital structure

---has potential common shares ---BASIC AND DILUTED EPS

diluted EPS

---incorporates the dilute effect of all potential common shares in the calculation of EPS ---more shares of stock sharing the one income

simple capital structure

---no potential common shares ---stock options ---convertible and could become common shares ---BASIC EPS ONLY

Marian Company granted restricted stock units for its par value stock to its top executives. When the restriction is lifted, Marian should

Debit PIC-restricted stock Credit common stock and PIC in excess of par

performance target

The planned or expected level of performance

convertible securities

a bond or share of preferred stock that gives its holder the right to exchange it for a stated number of shares of common stock

Which of the following will qualify a company for having a simple capital structure for the purpose of earnings per share?

a company that has no outstanding securities that could potentially dilute EPS

Frohe Inc. sponsors a restricted stock units award plan under which employees can choose to receive either company stock or cash. During the vesting period, the company should recognize the award as a credit to a:

a liability account

contingently issuable shares

additional shares of common stock to be issued, contingent on the occurrence of some future circumstance.

For the purpose of calculating diluted EPS, convertible preferred stock is

assumed to have already been converted

when are stock option compensations measured

at the grant date based on an option pricing model

Which of the following would prevent Norbert Company from having a simple capital structure for the purpose of reporting EPS?

convertible preferred stocks

when options are exercised:

credit: Common stock and APIC

when options are exercised:

debit: cash and PIC- stock options

Stock option

employee aren't actually awarded shares, but rather are given the option to buy shares at a specified exercise price within come specific number of years from the date of grant

Compensation plans that are tied to the achievement of certain targets and are used to motivate key employees are referred to as ________.

executive, management, manager, or performance compensation plans.

what makes it antidilutive

exercisable price was more than ending market price

restricted stock awards are

included in the calculation of EPS if unvested

If convertible securities are dilutive to EPS, the effect of the assumed conversion will

increase the numerator by interest on bonds or preferred dividends that would have been avoided increase the denominator by the additional common shares that would have been issued under conversion

bonds effecting deps

increases the numerator by the interest after tax

Which method for valuing stock options typically resulted in the recognition of no compensation expense?

intrinsic value method

Warrants, options, and rights are dilutive if the exercise price is

lower than the stocks' average market price

Consistent with the revised FASB standard on stock options, the value of stock options

must be recognized as an expense.

EPS forumula

net income - preferred dividends / weighted average common shares outstanding

preferred stock and deps

numerator is not reduced by the preferred dividends because we pretend that we didn't pay them

When stock options are allowed to lapse, paid in capital from stock options should be reclassified as

paid-in capital from expired stock options

When a company reacquires its own shares, and weighted-average shares are calculated for the purpose of determining EPS, the reacquired shares that are subtracted from the weighted-average calculation are weighted for the

period that they are not outstanding

employee share purchase plans

permit all employees to buy shares directly from their company, often at favorable terms

stock option

plans give employees the choice to purchase a specified number of shares of the firm's stock at a specified price during a specified period of time.

Which of the following are subtracted when determining earnings available to common shareholders?

preferred stock dividends

when calculating DEPS

pretend the options have been exercised at the beginning of the period or when issued if later

target based on changes in the market

record compensation as if target was not met

For the purpose of deriving EPS, securities are considered dilutive if they are capable of

reducing earnings per share

Which of the following are common types of restricted stock plans?

restricted stock units and restricted stock awards

Mueller Company estimates that it is unlikely that a particular executive will achieve a specific performance target. Mueller already recognized compensation expense related to this performance plan. Mueller must _________ the related expense.

reverse or credit

When it becomes probable that a performance target will not be met, previously recognized compensation expense must be:

reversed

restricted stock units

right to receive shares, subject to forfeiture by the employee if employment is terminated within some specific number of years from the date of grants

restricted stock awards

shares issued in the name of the employee, subject to forfeiture by the employee if the employment is terminated within some specific number of years from the date of grant

Forfeiture

should be considered if previous experience indicates that a material number of the options will be forfeited before they vest

compensation related to performance target

should be recorded if we think the target will be met

Earnings per share is reported very frequently in the financial press because it

tends to summarize the company's performace

Earnings per share EPS

the amount of income earned by a company expressed on a per share basis

intrinsic values

the difference between the market price of the shares and the option price at which they can be acquired.

Antidilutive securities

the effect of the conversion or exercise of potential common shares would be to increase rather than decrease, EPS.

Donald Company grants stock options to certain employees. On the date of grant, Donald should measure total compensation based on

the fair value of the options

nonqualified stock option plan

the recipient must pay taxes on the difference between the exercise price and the market price of the stock at the exercise date

incentive stock option plan

the recipient pays taxes only when the shares acquired under the plan are sold

Restricted Stock Plan

tied to continued employment

Which of the following represent typical goals of executive compensation plans?

to provide compensation to certain employees and create performance incentives for certain employees

Stock options have become an integral part of most medium and large companies.

true

Which of the following common or potential common shares must be considered for inclusion in basic EPS?

vested restricted stock awards