Share based compensation and earnings per share

Which organizations or groups initially opposed a 1993 proposed accounting standard on stock options?

- Congress - SEC

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

Intrinsic value method

Which of the following statements regarding the prevalence of stock option awards is correct?

Many large and medium-size companies grant stock options.

Under its restricted stock award plan, Katrin Corp. grants 100,000 of its $1 par value common shares to certain executives on January 2, 2018. The award is contingent on continued employment for 4 years. Shares have a current market value of $10 per share. On January 2, 2021, 10% of the share awards were forfeited. Katrin should credit

compensation expense for $75,000.

Falken Company awards 1,000 shares of common stock to Robert Small. The shares are restricted and require that Robert remains with the company for at least 2 more years. The current market price of the shares is $15 per share. Total compensation associated with this restricted stock award is

$15,000

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

- Restricted stock awards - Restricted stock units

Which of the following are facts or conditions that are specifically set forth in stock option plans?

- The maximum number of shares option holders may purchase - The time period during which option holders may purchase shares - The price at which option holders may purchase shares

Under its restricted stock award plan, Katrin Corp. grants 100,000 of its $1 par value common shares to certain executives on January 2, 2018. The awards are contingent on continued employment for 4 years. Shares have a current market value of $10 per share. For the year ended December 31, 2021, Katrin should recognize compensation expense of

250,000

Which of the following statements regarding the effect of the intrinsic value method on the valuation of stock options is correct?

It typically results in zero compensation expense.

When a company recognizes compensation expense related to restricted stock units awards payable in cash, the company should also credit a(n) ______.

Liability

True or false: Stock options have become an integral part of most medium and large companies.

True

Stock options give employees the choice to purchase ________ during a specific time period.

a specified number of shares of the firm's stock at a specified price

On the date of grant, Sadler Corp. estimated the fair value of restricted stock units representing common shares issued under its RSU plan. At the end of the vesting period, employees can elect to receive cash instead of common stock. After recognizing compensation for two years, but before the restriction is lifted, the fair value of the stock increased. Sadler should:

adjust compensation expense and increase the liability

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.

Expensing of the value of stock options

Does not affect cash flows

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

- To provide compensation to certain employees. - To create performance incentives for certain employees.

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

- credit common stock. - debit paid-in capital—restricted stock. - credit paid-in capital in excess of par.

Which group or organization tended to support the FASB's 1993 exposure draft that proposed expense recognition of the value of stock options?

Academia

Which of the following is an acceptable alternative for recognizing restricted stock grants at the date of grant?

Debit deferred compensation for the total value of the granted shares.

______ ______ 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.

Stock option

Which of the following is correct regarding the nature of restricted stock?

The shares typically are contingent on the continued employment of the awardee.

Awards of shares, stock options, and cash payments tied to the market price of shares are common types of share-based ______.

compensation, payment, incentive, or awards

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

executive, management, manager, performance, or share-based

Frohe Inc. sponsors a restricted stock units award plan under which employees can choose to receive either company stock or cash. Frohe should determine the fair value of the award:

on the date of grant

Share-based plans that requires that the awardee continue to be employed by the granting company are typically referred to as

restricted stock plans

Typically stock options are exercisable

several years after the grant date

Which of the following represent accounting issues that are common to all share-based compensation plans?

- Determining the fair value of the compensation. - Expensing the compensation over the period in which participants perform service.

Match the type of stock with the timing of issuance of the shares. Restricted stock: Restricted stock units:

- Issued at time of grant - Issued after a vesting period

Which of the following are considered share-based compensation plans?

- SARs - stock options

Which of the following represent primary reasons given by opponents of the FASB's 1993 exposure draft on stock options?

- The fair value of stock options cannot be measured. - The stock options have zero fair value when the options are issued. - Expensing would lead to unacceptable economic consequences.

What counterarguments did the FASB make in response to constituents' criticism on the 1993 stock option exposure draft?

- The value of stock options can be measured/estimated. - Options represent valuable compensation at the option grant date.

When restrictions are lifted on restricted stock units for par value stock, paid-in capital restricted stock is replaced by

- common stock - paid-in capital - excess of par

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

- current market price of the stock - expected term of the option - exercise price of the options

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

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

Accounting for stock option plans consistent with the FASB's recommendation provided two choices for valuing stock options. What were these choices?

- fair value method - intrinsic value method

True or false: Unlike restricted stock, recipients of restricted stock units (RSUs) benefit by the value of the shares immediately at the date of issuance.

False

Cater Company issues 100 shares of restricted stock to Berta Miller. Which of the following incentives does this stock most likely provide for Berta?

To remain with Cater Company.

Under its restricted stock award plan, Katrin Corp. grants 100,000 of its $1 par value common shares to certain executives on January 2, 2018. The awards are contingent on continued employment for 4 years. Shares have a current market value of $10 per share. On January 2, 2022, Katrin's journal entry should include

a credit to common stock for $100,000.

If an employee is entitled to receive cash under a restricted stock units award plan, the sponsoring company should recognize:

a liability

On the date of grant, Gunter Inc. estimated the fair value of restricted stock units. After recognizing compensation for two years, but before the restriction is lifted, the fair value of the stock increased. Gunter should:

adjust compensation expense and liability

Under its restricted stock award plan, Kilian Corp. grants 100,000 of its $1 par value common shares to certain executives on January 2, 2018. The award is contingent on continued employment for 4 years. Shares have a current market value of $10 per share. On January 2, 2020, 15% of the share awards were forfeited. Kilian should credit

compensation expense for $75,000.

The accounting method for stock options affects reporting of:

expense

The accounting issues that arise in connection with share-based compensation include determining ______ the value of the compensation.

fair

Under current GAAP, stock options must be reported in the income statement at

fair value.

Selina Inc. sponsors a restricted stock units awards plan under which employees may elect to receive cash. When Selina debits "compensation expense," it should credit:

liability - restricted stock

Total compensation associated with restricted stock awards typically is equal to the shares'

market price at grant date of the award.

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

must be recognized as an expense.

Carter Company issues 100 shares of restricted stock to Berta Miller, who has worked for the company for 5 years. The stock grant requires that Berta remain with the company another 4 years. Compensation expense relating to the value of this restricted stock should be recognized

over a 4-year period

The objective of accounting for share-based compensation is to recognize compensation expense

over the period in which related services are performed.

Frohe Inc. sponsors a restricted stock units award plan under which employees can choose to receive either company stock or cash. Frohe should recognize compensation expense:

over the service period

Compensation relating to stock option grants should be

recognized over the service period for which employees receive options.

Deferred compensation associated with restricted stock grants should be reported as a

reduction of stockholders' equity.

Stock award plans that are used to motivate employees to remain with the granting company are referred to as ______ stock awards.

restricted

The fair value of stock options is measured when the

stock options are granted.

Compensation associated with restricted stock grants should be amortized over the

stock's vesting period.

Which groups or organizations tended to oppose the FASB's 1993 exposure draft that proposed expense recognition of the value of stock options?

the SEC auditors corporate executives

Which of the following events strongly contributed to the reemergence of the debate about accounting for stock options?

The collapse of Enron and other large accounting frauds.

From an accounting perspective, the significance of the stock option vesting period is that it is the time period

over which compensation expense is allocated.

Public outrage about high profile fraud cases renewed interest in requiring stock option compensation to be __________.

reported in income statements

The FASB's 1993 exposure draft on stock options proposed that the estimated value of stock options should be

expensed

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