Exercise 19–28
Requirement 1
The SARs are considered to be a liability because employees can elect to receive
Requirement 2
December 31, 2016 ($ in millions)
Compensation expense ($4 x 24 million x 1/4) 24
Liability—SAR plan 24
Requirement 3
December 31, 2020
Compensation expense ([$3 x 24 million x all] – 24 – 12 – 36 + 12) 12
Liability—SAR plan 12
Requirement 4
June 6, 2021
19–42 Intermediate Accounting, 8/e
Exercise 19–29
Requirement 1
January 1, 2016
No entry
Requirement 2
December 31, 2016 ($ in millions)
Compensation expense ($8 x 50 million x 1/4) 100
Liability—RSUs 100
Requirement 3
December 31, 2020
Compensation expense ([$6 x 50 million x all] – 100 – 50 – 150 + 50) 50
Liability— RSUs 50
Requirement 4
June 6, 2021
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. c. The FASB requires companies with a history of forfeitures to use that
history in estimating the compensation expense allocated over the service
2. b. The total compensation is $24,000, the option model price of $8 each times
3. b. The key point is that the stock split is retroactive to the beginning of the
year.
20,000 (2.0, for stock split) + 10,000 (6/12, for new shares) = 45,000
5. b. Proceeds from exercise of options = 9,000 shs. $7 = $63,000
Used to repurchase common stock at average market price = $63,000 $9
19–44 Intermediate Accounting, 8/e
CPA Exam Questions (continued)
6. c. The “if converted method” assumes that the preferred stock was converted to
common stock and that preferred dividends were not distributed. Therefore,
the numerator in the computation of diluted EPS would be the net income of
$900,000.
8. b. Under U.S. GAAP, for stock options, a deferred tax asset (DTA) is created
for the cumulative amount of the fair value of the options the company has
CPA Exam Questions (concluded)
9. c.
Vesting Amount Fair Value Compensation
Date Vesting per Option Cost
(in 000s) ($ in 000s)
Dec. 31, 2016 16 $5 $ 80
$584
The compensation cost is allocated on a straight-line basis over the appropriate
vesting (service) period:
Shares Compensation Cost Recognized in: ($ in 000s)
Vesting at: 2016 2017 2018
CMA Exam Questions
1. d. A noncompensatory plan is defined as one in which substantially all full–
time employees participate, the stock available to each employee is equal or is
2. b. A compensatory stock option plan involves the issuance of stock in whole or
in part for employee services. The compensation cost should be recognized
PROBLEMS
Problem 19–1
Requirement 1
The measurement date is always is the date of grant, January 1, 2016.
Requirement 2
$ 6 estimated fair value per option
Requirement 3
Ensor should adjust the cumulative amount of compensation expense recorded
to date in the year the estimate changes.
($ in millions)
2017
2 years of the 3-year vesting
period have passed
All of the 3-year vesting
Problem 19–1 (concluded)
Requirement 4
This approach is contrary to the usual way companies account for changes in
estimates. For instance, assume a company acquires a three-year depreciable
Requirement 5
($ in millions)
Cash ($15 x 80% = $12 exercise price x 18 million shares) … 216
19–48 Intermediate Accounting, 8/e
Problem 19–2
Requirement 1
We treat each individual vesting date as a separate award:
Vesting Number Fair Value Compensation
Date Vesting per Option Cost
Dec. 31, 2016 100,000 $3.50 $ 350,000
The compensation cost is allocated on a straight-line basis over the appropriate
vesting (service) period:
Shares Compensation Expense Recorded in:
Vesting at: 2016 2017 2018 2019
Dec. 31, 2016 $350,000
Also, a company must have recognized at least the amount vested by that date.
The allocation here meets that constraint:
• The $825,000 recognized in 2016 exceeds the $350,000 vested.
Problem 19–2 (concluded)
Requirement 2
Companies are allowed to use the straight-line method. The $1,700,000 total
compensation cost is allocated equally to 2016, 2017, 2018, and 2019 at $425,000
per year. Also, a company must have recognized at least the amount vested by that
date. The straight-line allocation meets that constraint:
• The $425,000 recognized in 2016 exceeds the $350,000 vested.
Problem 19–3
Requirement 1
We treat each individual vesting date as a separate award:
Vesting Number Fair Value Compensation
Date Vesting per Option Cost
Dec. 31, 2016 100,000 $4.50 $ 450,000
The compensation cost is allocated on a straight-line basis over the appropriate
vesting (service) period:
Shares Compensation Expense Recorded in:
Vesting at: 2016 2017 2018 2019
Dec. 31, 2016 $450,000
Also, a company must have recognized at least the amount vested by that date.
The allocation here meets that constraint:
• The $937,500 recognized in 2016 exceeds the $450,000 vested.
Problem 19–3 (concluded)
Requirement 2
Companies are allowed to use the straight-line method. The $1,800,000 total
compensation cost is allocated equally to 2016, 2017, 2018, and 2019 at $450,000
per year. Notice that this approach is essentially the same as we use for options
that vest all at one time at the end of the vesting period (cliff-vesting). Also, a
19–52 Intermediate Accounting, 8/e
Problem 19–4
Requirement 1
Using IFRS, the basic accounting would be the same as under U.S. GAAP, except
there is no specific requirement that a company must have recognized at least the
amount vested by that date. We treat each individual vesting date as a separate
award:
Vesting Number Fair Value Compensation
Date Vesting per Option Cost
Dec. 31, 2016 100,000 $3.50 $ 350,000
The compensation cost is allocated on a straight-line basis over the appropriate
vesting (service) period:
Shares Compensation Expense Recorded in:
Vesting at: 2016 2017 2018 2019
Dec. 31, 2016 $350,000
Requirement 2
Under IFRS companies are not permitted to use the straight-line method.
Problem 19–5
Requirement 1
At January 1, 2016, the estimated value of the award is:
Requirement 2
($ in millions)
Compensation expense ($80 million ÷ 2 years) … 40
Note: Since the plan does not qualify as an incentive plan, Walters will
deduct the difference between the exercise price and the market price at
Requirement 3
Compensation expense ($80 million ÷ 2 years) … 40
Paid-in capital—stock options ………………… 40
Problem 19–5 (concluded)
Requirement 4
($ in millions)
Cash ($8 exercise price x 40 million shares) ……………………. 320
Paid-in capital—stock options (account balance) ………… 80
Requirement 5
Compensation expense ($80 million ÷ 2 years) ……………. 40
Requirement 6
Cash ($8 exercise price x 40 million shares) …………………… 320
Paid-in capital—stock options (account balance) ………… 80
Problem 19–6
Requirement 1
At January 1, 2016, the total compensation is measured as:
Requirement 2
Dec. 31, 2016, 2017, 2018
($ in millions)
Compensation expense ($36 million ÷ 3 years) … 12.0
Note: Since the plan does not qualify as an incentive plan, JBL will deduct the
difference between the exercise price and the market price at the exercise
date. Recall from Chapter 16 that this creates a temporary difference
Requirement 3
August 21, 2020
($ in millions)
Cash ($22 exercise price x 6 million shares) ……………………………. 132.0
Paid-in capital—stock options (account balance) …………………. 36.0
19–56 Intermediate Accounting, 8/e
Problem 19–7
Requirement 1
No entry until the end of the reporting period, but compensation must be
estimated at the grant date:
Requirement 2
December 31, 2016, 2017, 2018, 2019 ($ in millions)
Requirement 3
If, after two years, LCI estimates that it is not probable that the performance goals will
be met, then the new estimate of the total compensation would change to:
December 31, 2018 ($ in millions)
Paid-in capital—stock options …………………… 6
Compensation expense …………………………. 6
December 31, 2019
No entry
Problem 19–8
1. Net loss per share for the year ended December 31, 2016:
(amounts in millions, except per share amount)
net preferred Net Loss
2. Per share amount of income or loss from continuing operations for the year
ended December 31, 2016:
(amounts in millions, except per share amount)
Income from
Continuing
operating preferred Operations
Problem 19–8 (concluded)
3. 2016 and 2015 comparative income statements:
(amounts in millions, except per share amount)
2016 2015
Earnings (Loss) Per Common Share:
Income from continuing operations $ .16 $.71
Note: The weighted-average number of common shares in 2015 should be adjusted
for the stock dividend in 2016 for the purpose of reporting 2015 EPS in
subsequent years for comparative purposes:
Problem 19–9
2014
2015
net Earnings
income Per Share
$2,240,900 $2,240,900
————————————————— = ——————— = $1.23
1,855,000 – 110,000 (3/12) 1,827,500
shares retired
at Jan. 1 shares
2016
19–60 Intermediate Accounting, 8/e
Problem 19–10
(amounts in millions, except per share amount)
2014
net preferred Earnings
income dividends Per Share
2015
net preferred Earnings
income dividends Per Share
adjustment
2016
net preferred Earnings
income dividends Per Share