978-1259722660 Chapter 19 Solution Manual Part 1

AACSB assurance of

learning standards in

accounting and business

education require documentation of outcomes assessment. Although schools, departments, and

faculty may approach assessment and its documentation differently, one approach is to provide

specific questions on exams that become the basis for assessment. To aid faculty in this endeavor,

we have labeled each question, exercise, and problem in Intermediate Accounting, 8e, with the

following AACSB learning skills:

Questions AACSB Tags Exercises AACSB Tags

19–1 Reflective thinking 19–1 Analytic

19–2 Reflective thinking 19–2 Analytic

19–3 Reflective thinking 19–3 Analytic

19–4 Reflective thinking 19–4 Analytic

19–5 Reflective thinking 19–5 Analytic

19–6 Reflective thinking 19–6 Analytic

19–7 Analytic 19–7 Analytic

19–8 Reflective thinking 19–8 Analytic

19–9 Reflective thinking 19–9 Analytic

19–10 Reflective thinking 19–10 Analytic

19–11 Reflective thinking 19–11 Analytic

19–12 Reflective thinking 19–12 Analytic

19–13 Reflective thinking 19–13 Analytic

19–14 Reflective thinking 19–14 Analytic

19–15 Analytic 19–15 Analytic

19–16 Reflective thinking 19–16 Analytic

19–17 Reflective thinking 19–17 Analytic

19–18 Reflective thinking 19–18 Analytic

19–19 Reflective thinking 19–19 Analytic

Brief Exercises 19–20 Analytic

19–1 Analytic 19–21 Analytic

19–2 Analytic 19–22 Analytic

19–3 Analytic 19–23 Analytic

19–4 Analytic 19–24 Reflective thinking

19–5 Analytic 19–25 Communication

19–6 Analytic 19–26 Communication

19–7 Analytic 19–27 Analytic

19–8 Analytic 19–28 Analytic

19–9 Analytic 19-29 Analytic

19–10 Analytic

19–11 Analytic

19–12 Analytic

19–13 Analytic

19–14 Analytic

19-15 Analytic

Problems

19–1 Reflective thinking, Analytic

19–2 Analytic

19–3 Analytic

19–4 Diversity, Analytic

Solutions Manual, Vol.2, Chapter 19 19–&

Chapter 19 Share-Based Compensation

and Earnings per Share

19–5 Analytic

19–6 Analytic

19–7 Analytic

19–8 Analytic

19–9 Analytic

19–10 Analytic

19–11 Analytic

19–12 Analytic

19–13 Analytic

19–14 Analytic

19–15 Analytic

19–16 Analytic

19–17 Analytic

19–18 Analytic

19–19 Analytic

Question 19–1

Restricted stock refers to shares actually awarded in the name of an employee,

although the employer might retain physical possession of the shares. Typically, the

employee has all rights of a shareholder, but the shares are subject to certain

Solutions Manual, Vol.2, Chapter 19 19–&

QUESTIONS FOR REVIEW OF KEY TOPICS

Compensation cost for either is the fair value of the restricted stock at the grant

date and is equal to the market price of unrestricted shares of the same stock. The fair

Question 19–2

The fair value of a stock option is determined by employing a recognized option

pricing model. The option pricing model should take into account the (1) exercise

Solutions Manual, Vol.2, Chapter 19 19–&

Answers to Questions (continued)

Question 19–3

The recipient pays no tax at the time of the grant or the exercise of the options

The employee cannot delay paying tax under a nonqualified plan. The tax that

could be deferred until the shares are sold under an incentive plan must be paid at the

Question 19–4

For performance-based options initial estimates of compensation cost as well as

subsequent revisions of that estimate take into account the likelihood of both

If the award contains a market condition (e.g., a share option with an exercisability

requirement based on the stock price reaching a specified level), then no special

Solutions Manual, Vol.2, Chapter 19 19–&

Answers to Questions (continued)

A firm has a simple capital structure if it has no potential common

shares outstanding. These are securities that are not yet common stock,

For a firm with a simple capital structure, EPS is simply earnings available to

There is a fundamental difference between the increase in shares

caused by stock dividends and stock splits and an increase from selling

new shares. When additional shares are sold, both the assets of the firm and

shareholders’ equity are increased by an additional investment by owners. On the

Solutions Manual, Vol.2, Chapter 19 19–&

Question 19–5

Question 19–6

Answers to Questions (continued)

The weighted-average number of shares for calculating EPS

would be 104,500 determined as follows:

shares stock treasury

at Jan. 1 dividend shares

adjustment

The 1,200 shares retired are weighted by (5/12) to reflect the fact they were not

Preferred dividends are deducted from the numerator in the EPS

fraction so that “earnings available to common shareholders” will be

divided by the weighted-average number of common shares. An exception would be

Basic EPS does not reflect the dilutive effect of potential common

When calculating diluted EPS, we assume that the shares

Solutions Manual, Vol.2, Chapter 19 19–&

Question 19–7

Question 19–8

Question 19–9

Question 19–10

Answers to Questions (continued)

The potentially dilutive effect of convertible bonds is reflected in

diluted EPS calculations by assuming the bonds were converted into

common stock. The conversion is assumed to have occurred at the beginning of the

The potentially dilutive effect of convertible preferred stock is

reflected in diluted EPS calculations by assuming the preferred stock

When conversion is assumed, the additional common shares that would have

been issued upon conversion are added to the denominator of the EPS fraction. Since

EPS are calculated as if the preferred shares had been converted into common shares,

The order in which convertible securities are included in the

Solutions Manual, Vol.2, Chapter 19 19–&

Question 19–11

Question 19–12

Question 19–13

Answers to Questions (continued)

For the treasury stock method, “proceeds” include (1) the amount, if

Contingently issuable shares are considered outstanding in the

computation of diluted EPS when they will later be issued upon the

Contingently issuable shares:

no numerator adjustment

———————————

If conditions specified for issuance are not yet met, the additional shares are

Solutions Manual, Vol.2, Chapter 19 19–&

Question 19–14

Question 19–15

Answers to Questions (continued)

The calculation of diluted EPS assumes convertible bonds had

been converted at the beginning of the year (unless they actually were

issued later). If they actually had been converted, the actual conversion would cause

EPS data (both basic and diluted for a complex capital structure)

must be reported on the face of the income statement for income from

Solutions Manual, Vol.2, Chapter 19 19–&

Question 19–16

Question 19–17

Answers to Questions (concluded)

Question 19–19

The fair value of stock options has two essential components: (1) intrinsic value

and (2) time value. “Intrinsic value” is the benefit the holder of an option would

Solutions Manual, Vol.2, Chapter 19 19–&