Intermediate Chapter 19
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
At the beginning of the year, Solen Corp. had 100,000 shares of common stock outstanding. On April 1, the company issued an additional 60,000 shares. Weighted-average shares for the year will be
145,000 shares. Reason: 100,000 + (60,000 x 9/12)
Correctly match the type of vesting of stock options with the correct description.
Graded vesting - Stock options vest over time Cliff vesting - Stock options vest all at once
True or false: Stock options have become an integral part of most medium and large companies.
True
Which of the following would prevent Norbert Company from having a simple capital structure for the purpose of reporting EPS?
convertible preferred stocks
Marian Company granted restricted stock units for its par value stock to its top executives. When the restriction is lifted, Marian should
debit paid-in capital—restricted stock. credit paid-in capital in excess of par. credit common stock.
Compensation plans that are tied to the achievement of certain targets and are used to motivate key employees are referred to as _______________ compensation plans.
executive
Pfeffer Company reports net income of $360 million for 20X1; 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
250,000. Reason: [200,000 + (120,000 x 5/12)]
Which of the following is a likely advantages of employee share purchase plans for employers?
Increased employee loyalty to the company.
Which of the following statements regarding the prevalence of stock option awards is correct?
Many large and medium-size companies grant stock options.
Which of the following are common types of restricted stock plans?
Restricted stock awards Restricted stock units
Which of the following will result in the distribution of additional shares?
Stock dividends Stock splits
Which of the following scenarios will increase stockholders' equity?
The sale of new shares
Which of the following scenarios will increase total assets and equity?
The sale of new shares
Which of the following is correct regarding the nature of restricted stock?
The shares typically are contingent on the continued employment of the awardee.
Which of the following is correct regarding stock options and other share-based plans?
They frequently specify a performance or market condition.
Which of the following represent typical goals of executive compensation plans?
To create performance incentives for certain employees. To provide compensation to certain employees.
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
Employee share purchase plans typically allow ______ to purchase company shares at favorable terms.
all employees
In calculating EPS, preferred stock dividends are subtracted from the numerator because EPS represents earnings available to _______________ shareholders.
common
Which of the following may result in potential common shares?
convertible bonds convertible preferred stocks
Which of the following accounting numbers is reported most frequently by the media?
earnings per share
Investors' desire to focus on one number that may summarize a company's performance may explain the importance of
earnings per share.
Falcon Company grants stock options to its upper and middle management employees. The options vest over a 4-year period, with 25% exercisable after 1 year, 25% after 2 years, another 25% after 3 years, and the remaining 25% after 4 years. This is an example of
graded vesting.
Total compensation associated with restricted stock awards typically is equal to the shares'
market price at grant date of the award.
Share-based plans typically are grouped into two major categories based on the conditions that must be met by employees in order to receive the benefits of the award. These categories are
market-based plans. performance-based plans.
When restrictions are lifted on restricted stock units for par value stock, paid-in capital restricted stock is replaced by
paid-in capital - excess of par common stock
On January 2, 20X1, 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 20X4, 9,000 stock options were exercised. In 20X5, the remaining stock options expire. When the options expire, Utta should credit
paid-in capital—expired stock options for $6,000.
On January 2, 20X1, 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. On the date of grant, the estimated value of the options is $6 per option. During 20X4, when the market value of the stock is $30 per share, 9,000 stock options were exercised. Utta Corp. should recognize this event by debiting
paid-in capital—stock options for $54,000. cash for $180,000.
On January 2, 20X1, 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 20X4, 9,000 stock options were exercised. In 20X5, the remaining stock options expire. Utta should recognize the expiration by debiting
paid-in capital—stock options for $6,000.
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.
Which of the following are subtracted when determining earnings available to common shareholders?
preferred stock dividends
The treasury stock method takes into account the dilutive effect of stock options and assumes that the proceeds from the exercise of options are used to
purchase treasury shares.
Compensation relating to stock option grants should be
recognized over the service period for which employees receive options.
For the purpose of deriving EPS, securities are considered dilutive if they are capable of
reducing earnings per share.
_______________ _______________ 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
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.
Salt Company reports net income of $360 million for 2017; the company's tax rate is 40%. At the beginning of the year, 200 million common shares were outstanding. On July 1, Salt sold an additional 80 million shares and on October 1 distributed a 10% stock dividend. On December 1, the company reacquired 24 million of its outstanding shares. The company's weighted-average shares for the purpose of calculating basic EPS will be
262 million. Reason: [(200 + [80 x 6/12]) x 1.1] - 24/12
Which of the following plans frequently specify a performance condition or a market condition that must be satisfied before employees are allowed the benefits of the reward?
Other share-based plans Stock option plans
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
On January 2, 20X1, 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. On the date of grant, the estimated value of the options is $6 per option. During 20X4, 9,000 stock options were exercised. Utta Corp. should recognize this event by crediting
common stock for $9,000. paid-in capital in excess of par for $225,000. Reason: $1 x 9,000 shares Reason: $180,000 + $54,000 - $9,000
