ACC 327 Smart book chapter 19

the journal entry to record unexercised stock options that have been allowed to lapse includes

-debit to paid-in capital stock options -credit to paid-in capital expiration of stock option

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

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

Forhe 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 liability account

which of the following statements regarding the prevalence of stock option awards is correct

many large and medium size companies grant stock options

Basic EPS represents the income earned by one share of

common stock

the effect of changes in estimated option forfeitures must be recognized

cumulatively in the year the estimate changes

basic EPS is determined by dividing

earnings available to common shareholders by weighted average common shares outstanding

which of the following is true with respect to the accounting profession's response to the demand for comparable EPS numbers

inconsistencies in calculating EPS have been minimized

if a comoany issues nonqualifying stock options to employees ot

recognizes a deferred tax asset related to compensation expense recorded in the current period accounting income that is not yet deductible

the "if converted method" assumes that convertible securitites were converted into common stock at what point?

the beginning of the period

stock options are said to be "in the money" if

the current market price of the stock exceeds the option exercise price

which of the following is correct regarding stock options and other share based plans?

they frequently specify a performance or market condition

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 may result in potential common shares?

-convertible preferred stock -convertible bonds

which of the following are common types of restricted stock plans

-restricted stock units -restricted stock awards

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

fair value

when stock options expire compensation expense

is not affected

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

market price at grant date of the award

the rules surrounding the calculation of earnings per share are designed to _____ comparability by _____ differences in the calculation from one company to the next

maximize; minimizing

the value of stock options

must be recognized as an expense

accounting for employee share purchase plans is simplified if the plan meets three conditions. One of these conditions requires that the discount on the share purchase price is

no greater than 5%

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 grant date

compensation plans that are tied to the achievement of certain targets and are used to motivate key employees are referred to as _____ compensation plans

performance

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

initially, recognition of compensation expense for performance-based plans require that the achievement of the target is

probable

the treasury stock method takes into account the dilutive effect of stock options and assumes that he proceeds from the exercise of options are used to

purchase treasury stock

under a _____ stock option incentive plan, the exercise price of stock options must be ____ the market price at the grant date

qualified; equal to

compensation relating to stock option grants should be

recognized over the service period for which employees receive options

if share based awards are contingent on the achievement of specific market conditions, compensation expense is

recognized regardless of whether the conditions are met

if a company issues non qualifying stock options to employees it

recognizes a deferred tax asset related to compensation expense recorded in current period accounting income that is not yet deductible

for the purpose of deriving EPS, securities are considered dilutive is they are capable of

reducing earnings per share

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

reversed

typically stock options are exercisable

several years after the grant date

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

tends to summarize the company's performance

Pfeffer Company reports net income of $360 million for the year; the company's tax rate is 40%. At the beginning of the year, 200,000 common shares were outstanding. On August 1, the company issued an additional 120,000 shares. Weighted-average shares will be

$320,000 (200,000 + (120,000 * 5/12))

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

$15000

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?

-substantially all employees can participate in th plan -employees must decide within 1 month of the share price being fixed whether to buy shares -discounts on the share purchase price do not exceed 5%

what factors would affect the calculation of diluted EPS if convertible bonds are assumed to have been converted into common stock of the issuing company

-the number would reflect the after-tax savings of interest -the denominator would reflect the additional shares assumed issued

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

many large and medium size companies grant stock options

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

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

over which compensation expense is allocated

the wat we take into account the dilutive effect of stock options is referred to as the _______ stock method

treasury