Chapter 019 Share-Based Compensation and Earnings per Share
153. Sugarland Industries reported a net income of $750,750 on December 31, 2016. 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 2016.
154. Nagy Industries reported a net income of $619,369 on December 31, 2016. 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, 2016, 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 2016.
155. Burns Company reported $752.4 million in net income in 2016. On January 1, 2016, the company
had 400 million shares of common stock outstanding. On March 1, 2016, 24 million new shares of
common stock were sold for cash. On June 1, 2016, the company’s common stock split 2 for 1. On July
1, 2016, 8 million shares were reacquired as treasury stock.
Required:
Compute Burns’ basic earnings per share for the year ended December 31, 2016.
156. On January 1, 2016, Algerian Delivery had 100,000 shares of common stock outstanding. The
following transactions occurred during 2016:
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, 2016.
157. On January 1, 2016, Shamu Corporation had 100,000 shares of common stock outstanding. The
following transactions occurred during 2016:
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 2017:
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 2017.
2016:
158. On December 31, 2015, 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, 2016, Belair
purchased 24,000 shares of common stock on the open market as treasury stock paying $20 per share.
On June 30, 2016, Belair declared and issued a 2-for-1 stock split on outstanding common stock. Belair
sold 6,000 treasury shares on September 30, 2016, for $15 per share. Net income for 2016 was
$180,905.
Required:
Compute Belair’s basic earnings per share for 2016.
159. On December 31, 2015, Brisbane Company had 100,000 shares of common stock outstanding and
30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2016, Brisbane
purchased 24,000 shares of common stock on the open market as treasury stock paying $40 per share.
Brisbane sold 6,000 treasury shares on September 30, 2016, for $45 per share. Net income for 2016 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 $50 during 2016.
Required:
Compute Brisbane’s basic and diluted earnings per share (rounded to 2 decimal places) for 2016.
160. On December 31, 2015, 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, 2016, 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, 2016, for $37 per share. Net income for 2016 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 2016.
Required:
Compute Jackson’s basic and diluted earnings per share (rounded to 2 decimal places) for 2016.
161. On December 31, 2015, 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, 2016, 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, 2016, for $47 per share. Net income for
2016 was $180,905. Also outstanding at December 31, 2015, 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, 2016. The market price of the common shares averaged $50 during 2016.
Required:
Compute Jackson’s basic and diluted earnings per share (rounded to 2 decimal places) for 2016.
162. On December 31, 2015, 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, 2016, 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, 2016, for $47 per share. Net income for
2016 was $540,000. The income tax rate is 40%. Also outstanding at December 31, 2015, 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 2016. Five thousand 6% bonds were
issued at par on January 1, 2016. Each $1,000 bond is convertible into 125 shares of common stock.
None of the bonds had been converted by December 31, 2016, 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
2016.
Chapter 019 Share-Based Compensation and Earnings per Share
163. 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?
164. Fully vested incentive stock options for 60,000 shares of common stock at an exercise price of $50
were outstanding at the beginning of 2016. 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?
165. XYZ Company had 200,000 shares of common stock outstanding on December 31, 2015. On July
1, 2016, XYZ issued an additional 50,000 shares for cash. On January 1, 2016, 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 2016, 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 2016.
166. On December 31, 2015, Vitners Company had outstanding 400,000 shares of common stock and
40,000 shares of 8% cumulative preferred stock (par $10).
February 28, 2016, issued an additional 36,000 shares of common stock
September 1, 2016, 9,000 shares were retired.
A 10% stock dividend was declared and distributed on July 1, 2016.
At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of common
stock (adjusted for the stock dividend). The exercise price was $18. The market price of the common
stock averaged $20 during the year. Also outstanding were $1,000,000 face amount of 10% convertible
bonds issued in 2013 and convertible into 50,000 common shares (adjusted for the stock dividend). Net
income was $900,000. The tax rate for the year was 40%.
Required:
Compute basic and diluted EPS (rounded to 2 decimal places) for the year ended December 31, 2016.
167. On December 31, 2015, Merlin Company had outstanding 400,000 shares of common stock and
40,000 shares of 8% cumulative preferred stock (par $10). On February 28, 2016, Merlin issued an
additional 36,000 shares of common stock. A 10% stock dividend was declared and distributed on July
1, 2016. On September 1, 2016, 9,000 shares were retired. At year-end, there were fully vested
incentive stock options outstanding for 30,000 shares of common stock (adjusted for the stock
dividend). The exercise price was $18. The market price of the common stock averaged $20 during the
year. Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2013 and
convertible into 50,000 common shares (adjusted for the stock dividend). Net income was $900,000.
The tax rate for the year was 40%.
Required:
Compute basic and diluted EPS (rounded to 2 decimal places) for the year ended December 31, 2016.
168. Rice Inc. had 420 million shares of common stock and 1 million shares of 6%, $200 par,
cumulative preferred stock outstanding at the end of 2015 and 2016. No dividends were declared or
paid on either class of stock in either year. Net income for 2016 was $398.4 million. The company’s tax
rate is 30%.
Required:
Compute basic earnings per share for the year ended December 31, 2016.
169. On December 31, 2015, Witherspoon Services had 800,000 shares of common stock and 200,000
shares of 5.5%, noncumulative, nonconvertible $10 par preferred stock issued and outstanding.
On March 2, 2016, Witherspoon sold 120,000 common shares. In keeping with its long-term share
repurchase plan, 30,000 shares were retired on August 31. Witherspoon distributed a 10% common
stock dividend on June 3. Witherspoon’s net income for the year ended December 31, 2014, was
$600,000. The company paid cash dividends of $110,000 to preferred shareholders on December 20,
2016. The income tax rate is 40%.
Required:
Compute Witherspoon’s earnings per share for the year ended December 31, 2016.
170. At December 31, 2016, MedX Corporation had outstanding 200,000 shares of common stock.
Also outstanding were 120,000 shares of preferred stock convertible into 64,000 common shares and
$1,800,000 of 10% bonds convertible into 27,000 common shares
MedX’s net income for the year ended December 31, 2016, is $1,040,000. The income tax rate is
40%. MedX paid dividends of $2 per share on its preferred stock during 2016.
Required:
Compute basic and diluted earnings per share for the year ended December 31, 2016, considering
possible antidilutive effects.
Chapter 019 Share-Based Compensation and Earnings per Share
Chapter 019 Share-Based Compensation and Earnings per Share
171. Paul Company had 100,000 shares of common stock outstanding on January 1, 2016. On
September 30, 2016, Paul sold 48,000 shares of common stock for cash. Paul also had 10,000 shares of
convertible preferred stock outstanding throughout 2016. The preferred stock is $100 par, 6%, and is
convertible into 3 shares of common for each share of preferred. Paul also had 500, 8%, convertible
bonds outstanding throughout 2016. Each $1,000 bond is convertible into 30 shares of common stock.
The bonds sold originally at face value. Reported net income for 2016 was $300,000 with a 40% tax
rate. Common shareholders received $2 per share dividends after preferred dividends were paid in
2016.
Required:
Compute basic and diluted earnings per share (rounded to 2 decimal places) for 2016.
Chapter 019 Share-Based Compensation and Earnings per Share
172. Woolery, Inc., had 50,000 shares of common stock outstanding at January 1, 2016. On March 31,
2016, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of 6% convertible
bonds outstanding throughout the year. The bonds are convertible into 40,000 shares of common stock.
Net income for the year was $350,000. The tax rate is 35%.
Required: Compute basic and diluted earnings per share (rounded to 2 decimal places) for the year
ended December 31, 2016.
173. During 2016, Quattro entered into the following transactions relating to shareholders’ equity. The
corporation was authorized to issue 20 million common shares, $1 par per share.
Net income for 2016 was $110 million.
Jan. 2: Issued 10 million common shares for cash.
Jan. 3 Entered an agreement with the company president to issue up to 2 million additional shares of
common stock in 2016 based on the earnings of Quattro in 2016. If net income exceeds $100
million, the president will receive 1 million shares; 2 million shares if net income exceeds $120
million.
Required:
Compute basic and diluted EPS for 2016.
Chapter 019 Share-Based Compensation and Earnings per Share
Essays
174. What is restricted stock? Describe how compensation expense is determined and recorded for a
restricted stock plan.