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Exercise 19–6
Requirement 1
At January 1, 2016, the estimated value of the award is:
Requirement 2
($ in millions)
Requirement 3
Adams-Meneke should adjust the cumulative amount of compensation
2018
Compensation expense ([$75 x 94% x 3/3] – 25 – 22) ............ 23.5
Paid-in capital—stock options ............................................. 23.5
Note that this approach is contrary to the usual way companies account for
changes in estimates. For instance, assume a company acquires a three-year
19–22 Intermediate Accounting, 8/e
Exercise 19–7
Requirement 1
At January 1, 2016, the estimated value of the award is:
= $40 million fair value of award
Requirement 2
($ in millions)
Compensation expense ($40 million ÷ 2 years) ... 20
Requirement 3
Requirement 4
Cash ($8 exercise price x 30 million shares) ........................ 240
Paid-in capital—stock options
Requirement 5
Paid-in capital—stock options ($40 – 30 million) ........... 10
Paid-in capital—expiration of stock options .......... 10
Exercise 19–8
Requirement 1
At January 1, 2016, the total compensation is measured as:
Requirement 2
December 31, 2016, 2017, 2018
($ in millions)
Requirement 3
Cash ($11 exercise price x 12 million shares) ...................... 132
Paid-in capital—stock options ($12 million x 3 years) .... 36
Exercise 19–9
Cash ($12 x 50,000 x 85%) 510,000
Exercise 19–10
(amounts in thousands, except per share amount)
net Earnings
income Per Share
$655 $655
Exercise 19–11
1. EPS in 2016
(amounts in thousands, except per share amount)
net Earnings
2. EPS in 2017
(amounts in thousands, except per share amount)
net Earnings
3. 2016 EPS in the 2017 comparative financial statements
(amounts in thousands, except per share amount)
net Earnings
19–26 Intermediate Accounting, 8/e
Exercise 19–12
(amounts in thousands, except per share amount)
net preferred Earnings
Exercise 19–13
(amounts in thousands, except per share amount)
net preferred Net Loss
19.5% x $800* = $76
Exercise 19–14
(amounts in millions, except per share amount)
net preferred Earnings
income dividends Per Share
$150 – $27* $123
Exercise 19–15
(amounts in millions, except per share amount)
Basic EPS
net preferred
income dividends
$150 – $27* $123
Diluted EPS
net preferred
income dividends
$150 – $27 $123
**Purchase of treasury stock
30 million shares
Exercise 19–16
(amounts in millions, except per share amount)
Basic EPS
net preferred
income dividends
$150 – $27* $123
Diluted EPS
net preferred
income dividends
$150 – $27 $123
**Purchase of treasury stock
30 million shares
x $56 (exercise price)
$1,680 million
÷ $70 (average market price)
24 million shares
19–30 Intermediate Accounting, 8/e
Exercise 19–17
(amounts in millions, except per share amount)
Basic EPS
net preferred
income dividends
Diluted EPS
net preferred after-tax
income dividends interest savings
$150 – $27 + $5* – 40% ($5**) $126
———————————————————————————— = — = $.62
200 (1.05) – 24 (10/12) (1.05) + 4 (3/12) + (30 – 24***) + 6 202
shares treasury new assumed exercise conversion
Exercise 19–18
(amounts in thousands, except per share amount)
Basic EPS
Diluted EPS
net
income
$720 $720
————————————————————— = —— = $8.09
80 + 15 (4/12) + (24 – 20*) 89
shares new assumed exercise
at Jan. 1 shares of options
*Purchase of treasury shares
Exercise 19–19
(amounts in thousands, except per share amounts)
Basic EPS
Diluted EPS
net preferred preferred after-tax
income dividends dividends interest savings
Order of Entry:
Note that we included in our calculation, the convertible security with the lowest
“incremental effect” ($60 ÷ 32 = $1.87) before the one with the higher effect ($60 ÷
30 = $2.00).
After including the conversion of the preferred stock only, EPS is $500 ÷ 132 = $3.79.
Exercise 19–20
(amounts in thousands, except per share amounts)
Basic EPS
Diluted EPS
net Earnings
income Per Share
$120 $120
—————————— = ——— = $.14
800 + (54 – 18*) 836
shares shares
at Jan. 1 assumed vested
Proceeds:
$270,000 ($5 market price per share x 54,000 shares)
*Assumed purchase of treasury shares
$90,000 proceeds
÷ $5 (average market price)
18,000 shares
Note: The proceeds also must be increased (or decreased) by any tax benefits that
19–34 Intermediate Accounting, 8/e
Exercise 19–21
Requirement 1
$5 fair value per share
x 18 million shares granted
= $90 million fair value of award
The $90 million total compensation is expensed equally over the three-year vesting
period, reducing earnings by $30 million each year.
Requirement 2
The total compensation for the award is $90 million ($5 market price per share x 18
million shares). Because the stock award vests over three years, it is expensed as $30
million each year for three years. At the end of 2016, the second year, $60 million
Exercise 19–22
(amounts in millions, except per share amounts)
Basic EPS
Diluted EPS
net
income
$148 $148
Exercise 19–23
(amounts in thousands, except per share amounts)
Basic EPS
Diluted EPS
net
income
$2,000 $2,000
Exercise 19–24
List A List B
__e_ 1. Subtract preferred dividends. a. Options exercised.
__m_ 2. Time-weighted by 5/12. b. Simple capital structure.
__a_ 3. Time-weighted shares assumed issued c. Basic EPS.
Exercise 19–25
Requirement 1
The FASB Accounting Standards Codification represents the single source of
Requirement 2
Section 718–10–50–2c states that companies must disclose:
For the most recent year for which an income statement is provided, both of the
following:
1. The number and weighted-average exercise prices (or conversion ratios) for
each of the following groups of share options:
1. Those outstanding at the beginning of the year
Exercise 19–26
The FASB Accounting Standards Codification represents the single source of
authoritative U.S. generally accepted accounting principles. The specific citation for
each of the following items is:
1. Stock options:
2. The measurement date for share-based payments classified as liabilities:
3. The formula to calculate diluted earnings per share.
4. The way stock dividends or stock splits in the current year affect the
19–40 Intermediate Accounting, 8/e
Exercise 19–27
Requirement 1
The SARs are considered to be equity because IE will settle in shares of IE
stock at exercise.
January 1, 2016
No entry
Calculate total compensation expense:
Requirement 2
December 31, 2016, 2017, 2018, 2019 ($ in millions)
Compensation expense ($72 million ÷ 4 years) 18
Paid-in capital—SAR plan 18
Requirement 3
Requirement 4
June 6, 2021
