101
102
177) Mann Inc. offers a restricted stock award plan to its vice presidents. On January 1, 2018,
the corporation granted 10 million of its $5 par common shares, subject to forfeiture if
employment is terminated within two years. The common shares have a market value of $10 per
share on the date the award is granted.
Required:
1. Assume that no shares are forfeited. Determine the total compensation cost pertaining to the
restricted shares.
2. Prepare the appropriate journal entries related to the restricted stock through December 31,
2019.
103
178) On January 1, 2018, Jeans-R-Us Company awarded 15 million of its $1 par common shares
to key personnel, subject to forfeiture if employment is terminated within three years. On the
date of the grant, the stock had a market price of $3 per share.
Required:
(1.) Determine the total compensation cost pertaining to the restricted shares.
(2.) Prepare the appropriate journal entry to record the award on January 1, 2018.
(3.) Prepare the appropriate journal entry to record compensation expense on December 31,
2018.
104
179) On January 1, 2018, La-Dee-Da Company awarded 15 million of its $1 par common shares
to key personnel, subject to forfeiture if employment is terminated within three years. On the
date of the grant, the stock had a market price of $3 per share.
Required:
(1.) Determine the total compensation cost pertaining to the restricted shares.
(2.) Prepare the appropriate journal entry to record the award on January 1, 2018.
(3.) Prepare the appropriate journal entry to record compensation expense on December 31,
2018.
(4.) Prepare the appropriate journal entry to record compensation expense on December 31,
2019.
(5.) Prepare the appropriate journal entry to record compensation expense on December 31,
2020.
(6.) Prepare the appropriate journal entry to record the lifting of restrictions on December 31,
2020.
105
180) Hammerstein Corporation offers a variety of share-based compensation plans to
employees. Under its restricted stock award plan, the company, on January 1, 2018, 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, 2018.
(3.) Prepare the appropriate journal entry to record compensation expense on December 31,
2018.
(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.
106
181) The Santiago Corporation provides an executive stock option plan. Under the plan, the
company granted options on January 1, 2018, that permit executives to acquire 70 million of the
company’s $1 par value common shares within the next eight years, but not before December 31,
2021 (the vesting date). The exercise price is the market price of the shares on the date of the
grant, $27 per share. The fair value of the options, estimated by an appropriate option pricing
model, is $4 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry (if any) to record the award of options on January 1,
2018.
3. Prepare the appropriate journal entry (if any) to record compensation expense on December
31, 2018.
182) Cartel Products Inc. offers a restricted stock award plan to its vice presidents. On January 1,
2018, the corporation granted 12 million of its $1 par common shares, subject to forfeiture if
employment is terminated within two years. The common shares have a market value of $6 per
share on the date the award is granted.
Required:
(1.) Assume that no shares are forfeited. Determine the total compensation cost pertaining to the
restricted shares.
(2.) Prepare the appropriate journal entries related to the restricted stock through December 31,
2019.
108
183) Olde Corporation provides an executive stock option plan. Under the plan, the company
granted options on January 1, 2018, that permit executives to acquire 2 million of the company’s
$1 par value common shares within the next five years, but not before December 31, 2019 (the
vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per
share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per
option. No forfeitures are anticipated. Ignore taxes.
Required:
(1.) Determine the total compensation cost pertaining to the options, assuming the fair value
approach has been selected.
(2.) Prepare the appropriate journal entry to record the award of the options on January 1, 2018.
(3.) Prepare the journal entry to record compensation expense on December 31, 2018.
(4.) Prepare the journal entry to record compensation expense on December 31, 2019.
184) The Burford Corporation provides an executive stock option plan. Under the plan, the
company granted options on January 1, 2018, that permit executives to acquire 12 million of the
company’s $1 par value common shares within the next five years, but not before December 31,
2021 (the vesting date). The exercise price is the market price of the shares on the date of the
grant, $14 per share. The fair value of the options, estimated by an appropriate model, is $3 per
option. No forfeitures are anticipated. Ignore taxes.
Required:
(1.) Determine the total compensation cost pertaining to the options. Show calculations.
(2.) Prepare the appropriate journal entry (if any) to record the award of options on January 1,
2018.
(3.) Prepare the appropriate journal entry (if any) to record compensation expense on December
31, 2018.
110
185) In order to encourage employee ownership of the company’s $1 par common shares, T
Corp. permits any of its employees to buy shares directly from the company through payroll
deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During
June, employees purchased 150,000 shares at a time when the market price of the shares on the
New York Stock Exchange was $10 per share.
Required:
Prepare the appropriate journal entry to record the June purchases of shares under the employee
share purchase plan.
186) Kramer Inc. had 95 million shares of common stock, 1 million shares of 6%, $100 par,
cumulative preferred stock, and 1 million shares of 8%, $100 par, noncumulative preferred stock
outstanding at the end of 2017 and 2018. No dividends were declared or paid on common stock
in either year. In 2018, a $3 million dividend was paid on the 6% preferred stock and a $4
million dividend was paid on the 8% preferred stock. Net income for 2018 was $300 million.
The company’s tax rate is 30%.
Required:
Compute basic earnings per share (rounded to 2 decimal places) for the year ended December
31, 2018.
187) Capital Consulting Company had 400,000 shares of common stock outstanding on
December 31, 2018. On that date, there were also 5,000 shares of $100 par, 6% noncumulative
preferred stock outstanding. On March 1, 2018, the company’s common stock split 3-for-1. On
December 15, 2018, a preferred dividend was declared and paid in the amount of $25,000. Net
income for 2018 was $3,000,000.
Required:
Compute basic earnings per share (rounded to 2 decimal places) for the year ended December
31, 2018.
Accessible/AICPA: FN Measurement
188) Parsley Corporation had 250,000 shares of common stock and 5,000 shares of 8%, $100
par, preferred stock outstanding on December 31, 2017. The preferred stock is cumulative,
nonconvertible preferred stock. On June 1, 2018, Parsley sold 36,000 shares of common stock
for cash. No cash dividends were declared for 2018. Parsley reported a net loss of $320,000 for
the year ended December 31, 2018.
Required:
Calculate Parsley’s loss per share (rounded to 2 decimal places) for the year ended December 31,
2018.
112
189) 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.
190) Nagy Industries reported a net income of $619,369 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. On December 1, 2018, the company declared and issued a 10% stock
dividend.
Required:
Compute Nagy’s net income that would produce a basic EPS of $2.00 per share for 2018.
113
191) Burns Company reported $752.4 million in net income in 2018. On January 1, 2018, the
company had 400 million shares of common stock outstanding. On March 1, 2018, 24 million
new shares of common stock were sold for cash. On June 1, 2018, the company’s common stock
split 2 for 1. On July 1, 2018, 8 million shares were reacquired as treasury stock.
Required:
Compute Burns’ basic earnings per share for the year ended December 31, 2018.
192) On January 1, 2018, Algerian Delivery had 100,000 shares of common stock outstanding.
The following transactions occurred during 2018:
March 1:
Reacquired 3,000 shares, accounted for as treasury stock.
September 30:
Sold all the treasury shares.
December 1:
Sold 12,000 new shares for cash.
December 31:
Reported a net income of $297,750.
Required:
Calculate Algerian Delivery’s basic earnings per share for the year ended December 31, 2018.
114
193) On January 1, 2018, Shamu Corporation had 100,000 shares of common stock outstanding.
The following transactions occurred during 2018:
March 1:
Reacquired 3,000 shares, accounted for as treasury stock.
September 30:
Sold all the treasury shares.
December 1:
Sold 12,000 new shares for cash.
December 31:
Reported a net income of $198,500.
The following transactions occurred during 2019:
January 10:
Declared and issued a 25% stock dividend.
December 31:
Reported a net income of $268,800.
Required:
Calculate Shamu’s basic earnings per share (rounded to 2 decimal places) for both years for
presentation in comparative financial statements that will be prepared at the end of 2019.
(100,000 – 3,000 + 3,000 + 12,000) × 1.25
115
194) On December 31, 2017, Belair Corporation had 100,000 shares of common stock
outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On
February 28, 2018, Belair purchased 24,000 shares of common stock on the open market as
treasury stock paying $20 per share. On June 30, 2018, Belair declared and issued a 2-for-1
stock split on outstanding common stock. Belair sold 6,000 treasury shares on September 30,
2018, for $15 per share. Net income for 2018 was $180,905.
Required:
Compute Belair’s basic earnings per share for 2018.
Required:
Compute Brisbane’s basic and diluted earnings per share (rounded to 2 decimal places) for 2018.
116
196) On December 31, 2017, Jackson Company had 100,000 shares of common stock
outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On
February 28, 2018, Jackson purchased 24,000 shares of common stock on the open market as
treasury stock for $35 per share. Jackson sold 6,000 treasury shares on September 30, 2018, for
$37 per share. Net income for 2018 was $180,905. Also outstanding during the year were fully
vested incentive stock options giving key personnel the option to buy 50,000 common shares at
$40. The market price of the common shares averaged $39 during 2018.
Required:
Compute Jackson’s basic and diluted earnings per share (rounded to 2 decimal places) for 2018.
117
197) On December 31, 2017, Jackson Company had 100,000 shares of common stock
outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On
February 28, 2018, Jackson purchased 24,000 shares of common stock on the open market as
treasury stock paying $45 per share. Jackson sold 6,000 of the treasury shares on September 30,
2018, for $47 per share. Net income for 2018 was $180,905. Also outstanding at December 31,
2017, were fully vested incentive stock options giving key personnel the option to buy 50,000
common shares at $40. These stock options were exercised on November 1, 2018. The market
price of the common shares averaged $50 during 2018.
Required:
Compute Jackson’s basic and diluted earnings per share (rounded to 2 decimal places) for 2018.
198) On December 31, 2017, Heffner Company had 100,000 shares of common stock
outstanding and 30,000 shares of 7%, $100 par, cumulative preferred stock outstanding. On
February 28, 2018, Heffner purchased 24,000 shares of common stock on the open market as
treasury stock paying $45 per share. Heffner sold 6,000 of the treasury shares on September 30,
2018, for $47 per share. Net income for 2018 was $540,000. The income tax rate is 40%. Also
outstanding at December 31, 2017, were fully vested incentive stock options giving key
personnel the option to buy 50,000 common shares at $40. The market price of the common
shares averaged $50 during 2018. Five thousand 6% bonds were issued at par on January 1,
2018. Each $1,000 bond is convertible into 125 shares of common stock. None of the bonds had
been converted by December 31, 2018, and no stock options were exercised during the year.
Required:
Compute basic and diluted earnings per share (rounded to 2 decimal places) for Heffner
Company for 2018.
119
199) Fully vested incentive stock options for 100,000 shares of common stock at an exercise
price of $50 were outstanding for the entire year. The market price of the stock during the year
averaged $56.
Required:
By how many shares will the assumed exercise of these options increase the weighted-average
number of shares outstanding when calculating diluted earnings per share?
200) Fully vested incentive stock options for 60,000 shares of common stock at an exercise price
of $50 were outstanding at the beginning of 2018. The market price of the stock averaged $56
during the year.
Required:
If these options are exercised on March 1 of the current year, by how many shares will the
options increase the weighted-average number of shares outstanding when calculating diluted
earnings per share?
120
201) XYZ Company had 200,000 shares of common stock outstanding on December 31, 2017.
On July 1, 2018, XYZ issued an additional 50,000 shares for cash. On January 1, 2018, XYZ
issued 20,000 shares of convertible preferred stock. The preferred stock had a par value of $100
per share and paid a 5% dividend. Each share of preferred stock is convertible into 8 shares of
common. During 2018, XYZ paid the regular annual dividend on the preferred and common
stock. Net income for the year was $300,000.
Required:
Calculate XYZ’s basic and diluted earnings per share (rounded to 2 decimal places) for 2018.