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Problem 19–11
(amounts in thousands, except per share amount)
net preferred Earnings
income dividends Per Share
$2,100 – $75 $2,025
19–62 Intermediate Accounting, 8/e
Problem 19–12
The options issued in 2015 are not considered when calculating 2016 EPS because
the exercise price ($33) is not less than the 2015 average market price of $32. As a
result, these options are antidilutive.
The options issued in 2016 do not affect the calculation of 2016 EPS for two
Problem 19–12 (concluded)
(amounts in thousands, except per share amount)
Basic EPS
net preferred
income dividends
Diluted EPS
net preferred
income dividends
$2,100 – $75 $2,025
Problem 19–13
The options issued in 2015 are not considered when calculating 2016 EPS because
the exercise price ($33) is not less than the 2015 average market price of $32. As a
result, these options are antidilutive.
The options issued in 2016 do not affect the calculation of 2016 EPS for two
Problem 19–13 (concluded)
(amounts in thousands, except per share amounts)
Basic EPS
net preferred
income dividends
Diluted EPS
net preferred after-tax
income dividends interest savings
$2,100 – $75 + $80 – 40%($80) $2,073
19–66 Intermediate Accounting, 8/e
Problem 19–14
(amounts in millions, except per share amounts)
Basic EPS
net preferred
income dividends
The incremental effect of the conversion of the preferred stock is:
The incremental effect of the conversion of the bonds is:
after-tax
interest savings
+ $90** – 40% ($90**)
Problem 19–14 (concluded)
Diluted EPS (without conversion of bonds)
net preferred preferred
income dividends dividends
$520 – 120* +120* $520
Diluted EPS (with conversion of bonds)
net preferred preferred after-tax
income dividends dividends interest savings
$520 – 120* +120* + $90** – 40% ($90**) $574
Problem 19–15
Requirement 1
(amounts in thousands, except per share amount)
Basic EPS:
preferred
net income dividends
$150 – $77 $73
With conversion of preferred stock
(Diluted EPS):
net income
$150 $150
Problem 19–15 (concluded)
Requirement 2
Basic EPS:
net income
$150
————————— = $3.75
40
weighted-average
shares
Requirement 3
Since the exercise price is less than average market price, the options are not
antidilutive and therefore assumed exercised when calculating diluted EPS.
Requirement 4
Requirement 5
The 5,000 shares are added to the denominator when calculating diluted EPS
19–70 Intermediate Accounting, 8/e
Problem 19–16
(amounts in millions, except per share amounts)
Basic EPS
Diluted EPS
net after-tax*
income interest savings
$560 + $30 – 40% ($30) $578
Problem 19–17
(amounts in thousands, except per share amounts)
Basic EPS
Diluted EPS
net preferred preferred
income dividends dividends
$650 – $40* + 40* $650
**Assumed purchase of treasury shares
20,000 shares
Problem 19–18
(amounts in millions, except per share amounts)
Basic EPS
Diluted EPS
net preferred after-tax
income dividends Interest savings
$1,476 – $60* + $160 – 40% ($160) $1,512
*Preferred dividends: 6% x $50 x 20 million shares = $60 million
**Computation of treasury shares:
Problem 19–19
Requirement 1
(amounts in millions, except per share amount)
2016 Basic EPS
2016 Diluted EPS
net
income
$150 $150
* Reacquired shares for assumed exercise of stock options in 2016:
30 million options
x $10 exercise price
** Calculation of proceeds from unexpensed compensation:
30 million shares x $3 = $90 million total compensation to be expensed $30
million per year over 3 years (2015–2017). The expense has been recorded in
2015 and 2016:
19–74 Intermediate Accounting, 8/e
Problem 19–19 (continued)
Restricted Stock Award
Like stock options, restricted stock awards represent potential common shares and
*** Reacquired shares for assumed vesting of restricted stock in 2016:
$ 0 million cash proceeds
**** Calculation of proceeds from unexpensed compensation:
2016 ($ in millions)
Compensation expense 45
Paid-in capital—restricted stock 45
So, $135 million compensation (for 2017–2019) remains unexpensed and is
considered part of the hypothetical proceeds of the options.
Problem 19–19 (continued)
Requirement 2
(amounts in millions, except per share amount)
2017 Diluted EPS
net
income
$160 $160
* Reacquired shares for assumed exercise of stock options in 2017:
30 million options
x $10 exercise price
** Calculation of proceeds from unexpensed compensation:
30 million shares x $3 = $90 million total compensation to be expensed $30
19–76 Intermediate Accounting, 8/e
Problem 19–19 (concluded)
Restricted Stock Award
*** Reacquired shares for assumed vesting of restricted stock in 2017:
$ 0 million cash proceeds
**** Calculation of proceeds from unexpensed compensation:
15 million shares x $12 = $180 million total compensation to be expensed $45
million per year over four years. The expense has been recorded in 2016 and
2017:
2016 ($ in millions)
So, $90 million compensation (for 2018–2019) remains unexpensed and is
considered part of the hypothetical proceeds of the options.
The proceeds also are increased by the excess tax benefit:
$15 market price during 2017 (and thus price at hypothetical vesting)
Real World Case 19–1
Requirement 1
The shares are restricted in such a way as to provide some incentive to the
CASES
19–78 Intermediate Accounting, 8/e
Requirement 2
Compensation pertaining to pre-2013 grants:
Outstanding all year:
281 x $23.91 = $6,718.7 Nonvested at beg. of year
Vested in 2013:
Forfeited in 2013:
Granted in 2010 ($552.2 x 1/3 = $184):
Granted in 2011 ($552.2 x 1/3 = $184):
(concluded)
$1,673.7 2013 expense for awards
prior to 2013
2013 grants:
19–80 Intermediate Accounting, 8/e
Communication Case 19–2
Suggested Grading Concepts and Grading Scheme:
Content (80% )
30 Measurement of compensation.
Compensation cost should be measured at the date of grant.
Fair value of the stock options.
Revise compensation expense for remaining service period.
10 Effect of forfeiture after vesting.
Paid-in capital—stock options becomes Paid-in
capital—expiration of stock options.
Compensation expense of previous periods cannot be reversed
for vested options.
Bonus (5) For unvested, nonqualifying options:
Proceeds for TS method include unexpensed compensation.
