Hammerstein Corporation offers a variety of share-based compensation plans to
employees. Under its restricted stock award plan, the company, on January 1, 2016,
granted 2 million of its $1 par common shares to various division managers. The shares
are subject to forfeiture if employment is terminated within four years. The common
shares have a market price of $20 per share on the award date.
Required:
(1) Determine the total compensation cost from these restricted shares.
(2) Prepare the appropriate journal entry to record the award on January 1, 2016.
(3) Prepare the appropriate journal entry to record compensation expense on December
31, 2016.
(4) Suppose a 15% forfeiture rate was expected prior to vesting. Determine the total
compensation cost, assuming the company follows the fair value approach and chooses
to anticipate forfeitures at the grant date.
Compared to the accrual basis of accounting, the cash basis of accounting produces a
higher amount of income by the net decrease during the accounting period of:
Explain, using an example, how a company can use earnings management and justify it
by conservatism.
IFRS No. 9 is a standard that indicates accounting for investments when the investor
does not have significant influence over the investee. Required:
Explain how equity investments are accounted for under IFRS No. 9. What alternative
accounting approaches are available, what determines whether an investment qualifies
for each approach, and what are the key features of each approach with respect to
accounting for unrealized gains and losses?
On January 1, 2016, Shark Company sold $800,000 of 10% ten-year bonds. Interest is
payable semiannually on June 30 and December 31. The bonds were sold for $708,000,
priced to yield 12%. Shark records interest at the effective rate. Required:
Prepare the journal entry to record interest on June 30, 2016, using the effective interest
method.
Discuss the key quantitative elements of accounting for a defined benefit pension plan.
How many shares of treasury stock were removed for use during 2015, and for what
purpose(s)?