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Exam 19: Share-Based Compensation and Earnings Per Share

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Question 61

Multiple Choice

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Rudyard Corporation had 100,000 shares of common stock and 10,000 shares of 8%, $100 par convertible preferred stock outstanding during the year. Net income for the year was $400,000 and dividends were paid to both common and preferred shareholders. Rudyard's effective tax rate is 40%. - What is Rudyard's basic EPS?

A) $2.13.
B) $4.80.
C) $4.00.
D) $3.20.

E) All of the above
F) C) and D)

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Question 62

Multiple Choice

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When a company's income statement includes discontinued operations and a gain on the sale of machinery, the company should report per share information on:

A) Option A
B) Option B
C) Option C
D) Option D

E) B) and D)
F) A) and C)

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Question 63

Multiple Choice

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Gear Corporation had the following common stock record during the current calendar year: $\begin{array}{|l|r|}\hline \text { Outstanding-January } 1 & 100,000 \\\hline \text { Additional shares issued } 3 / 31 & 5,000,000 \\\hline \text { Distributed a } 10 \% \text { stock dividend on } 6 / 30 & \\\hline \text { Shares reacquired } 9 / 30 & 100,000 \\\hline\end{array}$ What is the number of shares to be used in computing basic EPS?

When a company's only potential common shares are convertible bonds:

When we take into account the dilutive effect of stock options, rights, and warrants in the calculation of EPS, the method used is called the:

Stock option plans give employees the option to purchase (a) a specified number of shares of the firm's stock, (b) at a specified price, (c) during a specified period of time. One of the most heated controversies in standard-setting history has been the debate over the amount of compensation to be recognized as expense for stock options. At issue is how the value of stock options is measured, which for most options determines whether any expense at all is recognized. The opposition included corporate executives, auditors, members of Congress, and the SEC. Required: Describe the primary objections of critics of the FASB's eventually successful attempt to require expensing of the fair value of the options.

The reporting of earnings per share is required only for:

Getaway Travel Company reported net income for 2018 in the amount of $50,000. During 2018, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2018. A 2-for-1 stock split was granted on July 5, 2018. What is the 2018 basic earnings per share (rounded) ?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Convertible bonds

Under IFRS, a deferred tax asset for stock options:

On October 1, 2018, Iona Frisbee Co. issued stock options for 300,000 shares to a division manager. The options have an estimated fair value of $3 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Frisbee initially estimates that it is probable the goal will be achieved. How much compensation will be recorded in each of the next three years?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Convertible preferred stock dividends

What is an antidilutive security?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Vesting period

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Option exercise price

Basic earnings per share is computed using:

Sugarland Industries reported a net income of $750,750 on December 31, 2018. At the beginning of the year, the company had 500,000 common shares outstanding. On April 1, the company sold 27,000 shares for cash. On August 31, the company issued 48,000 additional shares as part of a merger. Required: Compute Sugarland's net income that would produce a basic EPS of $2.00 per share for 2018.

On January 1, 2018, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2019, after the employee completed two years of service. The option was exercised on January 10, 2020. The market prices of D's stock were as follows: January 1, 2018, $30; December 31, 2019, $50; and January 10, 2020, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2018, D should recognize compensation expense of:

On December 31, 2017, the Frisbee Company had 250,000 shares of common stock issued and outstanding. On March 31, 2018, the company sold 50,000 additional shares for cash. Frisbee's net income for the year ended December 31, 2018, was $700,000. During 2018, Frisbee declared and paid $80,000 in cash dividends on its nonconvertible preferred stock. What is the 2018 basic earnings per share (rounded) ?

When several types of potential common shares exist, the one that enters the computation of diluted EPS first is the one with the: