Smartbook Share-Based Compensation and EPS (1 of 4), (2 of 4), (3 of 4), (4 of 4)

Pfeffer Company reports net income of $120,000 for 20X1; the company's tax rate is 40%. Throughout the year, 200,000 common shares were outstanding. Pfeffer's basic EPS will be

$0.60. = $120,000/200,000

Pfeffer 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 August 1, the company issued an additional 120 million shares. Pfeffer's basic EPS will be

$1.44. $360/[200 + (120 x 5/12)]

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 sells an additional 80 million shares. The company's basic EPS will be

$1.50. $360/[200 + (80 x 6/12)]

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

$15,000.

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. (($22.50/90% = $25.00) - $22.50) x 1,000

Select all that apply Emily wants to calculate basic earnings per share. She has information about the number of shares outstanding at the beginning of the year and the changes in the number shares during the current year. What other information does Emily need?

- Dividends earned by preferred stockholders. - The amount of net income

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

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

Select all that apply Which of the following represent continuing differences between IFRS and U.S. GAAP with respect to the calculation of EPS?

- The treatments of contracts that can be settled in cash, stock, or contingent issuable stock. - Application of the treasury stock method.

Select all that apply Which of the following represent typical goals of executive compensation plans?

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

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

- auditors - the SEC - corporate executives

Select all that apply 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

Select all that apply 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

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 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.

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

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

Intrinsic value method

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.

Which of the following represents a primary goal of calculating earnings per share?

To enhance financial statement comparability.

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

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

a liability account

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

On the date of grant, Gunter Inc. estimated the fair value of restricted stock units. After recognizing cash 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. (100,000 x 10)/4 x 2 x 15%

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. (100,000 x 10)/4 x 3 x 10%

A company with potential common shares outstanding has a _____ capital structure.

complex

Expensing of the value of stock options

does not affect cash flows.

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

does not result in compensation expense

One unintended potential consequence of generous share-based awards is _____ management.

earnings

Basic EPS is determined by dividing:

earnings available to common shareholders by the weighted-average number of common shares outstanding.

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

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

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

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.

Securities that may become common shares in the future are considered

potential common shares.

Compensation relating to stock option grants should be

recognized over the service period for which employees receive options.

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

reported in income statements

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.

Stock options are often used as employee incentives; therefore, stock options are typically exercisable

several years after they were granted.

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.

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

tends to summarize the company's performance.

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.

The effect of changes in estimated option forfeitures must be recognized

cumulatively in the year the estimate changes.

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

A single number that summarizes a company's performance and to which investors pay reasonable attention is the:

earnings per share.

Plans that permit all employees to buy shares directly from their company at favorable prices are referred to as

employee share purchase plans.

When stock options expire, compensation expense

is not affected

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.

Select all that apply 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

- performance-based plans. - market-based plans.

Select all that apply Which of the following securities represent potential common shares that need to be considered when determining diluted EPS?

- stock options - convertible preferred stocks - convertible bonds

Match each statement with the correct version of EPS. Basic EPS --> Diluted EPS -->

--> Ignores the dilutive effect of potential common shares --> Considers the dilutive effect of potential common shares

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

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

reduction of stockholders' equity.

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

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

compensation, payment, incentives, or awards

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

market price at grant date of the award.

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

compensation expense is recognized; the options are exercised

On January 2, 20X1, Werner Corp. grants 20,000 stock options with a 2-year vesting period to employees. On the grant date, the market price of the stock is equal to the exercise price. The estimated value of the options is $5 per option. On December 31, 20X1, the company should debit

compensation expense.

If an employee share purchase plan (ESPP) is considered noncompensatory, how does the company recognize compensation expense for the purchase of the related shares?

the company does not recognize compensation expense

Select all that apply Which of the following are common types of restricted stock plans?

- Restricted stock awards - Restricted stock units

Select all that apply Which of the following may result in potential common shares?

- convertible bonds - convertible preferred stocks

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.

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

convertible preferred stocks

Select all that apply 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

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. 1,000 x $6

Salt Company reports net income of $360 million for 20X1; the company's tax rate is 40%. Throughout the year, 200 million common shares were outstanding. Salt's basic EPS will be

$1.80.

Select all that apply Which organizations or groups initially opposed a 1993 proposed accounting standard on stock options?

- Congress - SEC

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

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

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

- intrinsic value method - fair value method

On January 2, 201X1, Muenster 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 $4 per option. During 20X4, 8,800 stock options were exercised. In 20X5, the remaining stock options expire. How will the expiration of the stock options affect the company's compensation expense?

Compensation expense will not be affected.

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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.

Select all that apply 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

What factor typically determines the accounting treatment for share-based plans?

The type of condition that must be fulfilled by employees of the sponsoring company.

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

True

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%

Which of the following is a remaining difference between IFRS and U.S. GAAP with respect to earnings per share?

Application of the treasury stock method

The _____ price of the shares does not affect the recognition of employees' exercise of stock options.

fair or market

Which of the following EPS calculations considers the effect of potential common shares?

Diluted EPS

Share-based awards may lead to

earnings management.

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

over the period in which related services are performed.

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.

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. = (100,000 x 10)/4

Select all that apply What additional factors must be considered when deriving basic EPS assuming that net income and the number of shares outstanding at the beginning of the reporting period are already known?

- Dividends earned by preferred stockholders. - Changes in the number of shares outstanding during the current year.

Select all that apply 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?

- 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%. - Substantially all employees can participate in the plan.

Select all that apply 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?

- Stock option plans - Other share-based plans

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

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

Select all that apply The journal entry to record unexercised stock options that have been allowed to lapse includes

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

Correctly match the timing of recognition of deferred tax assets relating to stock option plans with the accounting standard. U.S. GAAP --> IFRS -->

--> When the related compensation expense is recognized --> When the stock option has intrinsic value

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The accounting method for stock options affects reporting of:

expense

Under a ______ stock option incentive plan, the exercise price of stock options must be ______ the market price at the grant date.

qualified; equal to

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 company estimates that 7% of the options will be forfeited. On the date of grant, the estimated value of the options is $6 per option. During 20X2, Utta increases its estimate of stock option forfeitures to 10%. For the year ended December 31, 20X2, Utta should

recognize compensation expense of $17,400. (10,000 x $6 x 90% x 2/3) - 18,600

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 stock is equal to the exercise price and the company estimates that 7% of the options will be forfeited. On the date options are granted, their estimated value is $6 per option. For the year ended December 31, 20X1, Utta should

recognize compensation expense of $18,600. (10,000 x $6 x 93%)/3 years

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

restricted

Select all that apply On January 2, 20X1, Utta Corp. (a calendar-year company) grants 15,000 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 market value of each option is $5. The company's average tax rate is 30%. To reflect the tax effect of these nonqualifying stock options, Utta Corp. should

- credit income tax expense for $7,500. - debit deferred tax asset for $7,500.

Correctly match each type of stock option plan with the correct tax treatment. Incentive stock option plan --> Nonqualified stock option plan -->

--> The recipient pays taxes only when the shares acquired under the plan are sold. --> The recipient must pay taxes on the difference between the exercise price and the market price of the stock at the exercise date.

Select all that apply 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.

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. = [200,000 + (120,000 x 5/12)]

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.

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

Many large and medium-size companies grant stock options.

Wald Corp. allows its employees to purchase shares at a 10% discount. During the current month, employees purchased 1,000 shares. Wald should recognize the difference between the fair value of the shares and the cash received as a debit to

compensation expense

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 not 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.

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

must be recognized as an expense.

Select all that apply Which of the following are considered share-based compensation plans?

- SARs - stock options

Select all that apply Which of the following could cause a company to have a complex capital structure?

- Stock options - Contingently issuable securities - Convertible bonds - Convertible preferred stock

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

Academia

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

Basic EPS represents the income earned by one share of

common stock.

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

When estimates of options forfeitures change, the cumulative effect on compensation is recognized

in current earnings.

Select all that apply 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 volatility of the stock price - expected risk-free rate of return during the option term

When the tax benefit derived from nonqualified stock options is less than the amount recognized as a deferred tax asset, the company should recognize the difference by

increasing income tax expense.

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

expensed.

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.

Under _____ vesting, companies can choose to estimate a single fair value for the options, even though they vest over different time periods, and then allocate the total compensation cost equally over the entire vesting period.

graded

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.

When the tax benefit derived from nonqualifying stock options exceeds the amount recognized as a deferred tax asset, the company should recognize the difference by

increasing paid-in capital.

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

liability

On the date when stock options are granted, the sponsoring company should

measure the fair value of the options.

A primary goal of the rules governing the calculation of EPS is to achieve _____ between companies.

comparability

Under U.S. GAAP, a deferred tax asset relating to stock option plans is recognized when

compensation expense for granted stock options is recognized.

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.

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

paid-in capital from expired stock options

On January 2, 20X1, Werner Corp. grants 20,000 stock options with a 2-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price. The estimated value of the options is $5 per option. On December 31, 20X1, the company should credit

paid-in capital—stock options.

Which of the following types of securities potentially could be dilutive with respect to EPS?

convertible bonds

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.

For performance-based plans, changes in the estimated probability of meeting the target are recognized in (the) Blank______ period(s).

current

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 or likely

Initially, recognition of compensation expense for performance-based plans requires that the achievement of the target is

probable.

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 company estimates that 7% of the options will be forfeited. The estimated value of the options is $6 per option. During 20X2, Utta increases its estimate of stock option forfeitures to 10%. For the year ended December 31, 20X3, Utta should

recognize compensation expense of $18,000. (10,000 x $6 x 90%) - $18,600 - $17,400

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

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

Under IFRS, a deferred tax asset relating to stock option plans is recognized when

the options that generate a future tax benefit are "in the money."

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

The time between the date that options are granted and the first date they can be exercised is referred to as the _____ period.

vesting

Select all that apply Which of the following statements regarding the current trend in the popularity of share-based awards are correct?

- Stock options are becoming less popular. - Restricted stock plans are gaining popularity.

Select all that apply 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

- cash for $180,000. - paid-in capital—stock options for $54,000.

Select all that apply 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. $1 x 9,000 shares $180,000 + $54,000 - $9,000

Select all that apply Which of the following are valid categories of stock option plans for tax purposes?

- nonqualified stock option plans - incentive stock option plans

Correctly match the type of vesting of stock options with the correct description. Graded vesting --> Cliff vesting -->

--> Stock options vest over time. --> Stock options vest all at once.

Correctly match each type of stock option plan with the correct tax treatment. Incentive stock option plan --> Nonqualified stock option plan -->

--> The employer granting the stock options cannot deduct stock option-related values for tax purposes. --> The employer granting the stock options can deduct the difference between the exercise and the market price at the exercise date for tax purposes.

Which of the following stock options is considered "in the money" relating to options with an exercise price of $15 per share?

Current stock price per share is $20.

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.

True or false: Accounting for changes in estimated forfeitures of stock options is consistent with other changes in accounting estimates, which require prospective accounting treatment.

False

True or false: The popularity of stock options as a form of share-based compensation has increased steadily over time.

False

Which of the following is a likely advantage of employee share purchase plans for employers?

Increased employee loyalty to the company.

Which of the following statements regarding accounting for changes in estimated forfeitures of stock options is correct?

The accounting treatment does not follow the general rule for changes in estimates.

Which of the following is ignored when recognizing the exercise of stock options?

The market price of the related shares

Under which reporting standards are companies allowed to use the straight-line method to account for compensation expense when stock options vest over time (i.e., graded vesting)?

U.S. GAAP only

On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to certain employees. On the grant date, the market price of the stock is equal to the exercise price and the company estimates that 7% of the options will be forfeited. On the date of grant, the estimated value of the options is $6 per option. For the year ended December 31, 20X3, Utta should

recognize compensation expense of $18,600. (10,000 x $6 x 93%)/3 years

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

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