19-34 Intermediate Accounting, 8/e
STOCK APPRECIATION RIGHTS
When an SAR is considered to be equity (because the employer
can elect to settle in shares), the amount of compensation is
estimated at the grant date as the fair value of the SARs. This
amount is expensed over the service period.
When an SAR is considered to be a liability (because the
STOCK APPRECIATION RIGHTS
Universal Communications grants 10 million SARs to key executives at January
1, 2016. Upon exercise, the SARs entitle executives to receive cash or stock
equal in value to the excess of the market price at exercise over the share price at
January 1, 2016
No entry
December 31, 2016 ($ in millions)
December 31, 2017
Compensation expense ([$8 x 10 million x 2/4] – 21) 19
Liability – SAR plan 19
December 31, 2018
T19-28
STOCK APPRECIATION RIGHTS
(CONTINUED)
The liability continues to be adjusted after the service period if the rights
haven’t been exercised yet.
December 31, 2018 ($ in millions)
Assume for example that the SARs are exercised on October 11, 2018,
when the share price is $14.50, and executives choose to receive the market
price appreciation in cash:
October 11, 2018 ($ in millions)
T19-29
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1. Research Activity
Microsoft reported the following in its 2013 annual report:
Employee Stock Purchase Plan. We have an employee stock purchase plan for all eligible
Suggestions:
Have students describe way Microsoft accounts for shares purchased under this plan.
Note:
2. Research Activity
GAAP requires reporting both basic and diluted EPS, but there is some latitude in how these data are
reported within the financial statements.
Suggestions:
Have students locate financial statements of companies with which they are familiar. You may want
them to use the Internet where EDGAR at www.sec.com or specific corporate sites will provide
3. Real World Scenario
Time Warner, Inc. reported first quarter profits from operations of $52 million, or a loss of 5 cents a
share.
Suggestions:
Note:
The loss per share is due to the fact that preferred dividends were deducted from earnings before
4. Real World Scenario
Analysts attach great significance to earnings announcements. For that reason, companies are
particularly eager to meet earnings expectations. This desire has contributed to a relatively recent
trend, especially among technology firms, to report pro forma earnings per share.
Suggestions:
Ask students to perform an Internet search for companies that recently reported pro forma EPS.
Note:
Essentially, pro forma earnings are actual (GAAP) earnings reduced by any expenses the reporting
5. Real World Scenario
The Motley Fool, in an online article, “Bye-Bye, Stock Options,” said:
Are you a faithful employee of a company that grants you stock options every now and then?
If so, find a chair and sit down. I’ve got some bad news for you. Stock options may soon go the
way of the dodo bird and saber-toothed tiger. Media conglomerate Time Warner, for example,
recently announced plans to significantly cut back on its options issuance, eliminating them
entirely for most employees. Why is this happening?
Suggestions:
Note:
The Financial Accounting Standards Board (FASB) now requires companies to expense stock
19-40 Intermediate Accounting, 8/e
6. Professional Skills Development Activities
The following are suggested assignments from the end-of-chapter material that will help your
students develop their communication, research, analysis, and judgment skills.
Communication Skills. In addition to Communication Cases 19-2 and 19-9, Judgment Case 19-8
Research Skills. In their professional lives, our graduates will be required to locate and extract
relevant information from available resource material to determine the correct accounting
Analysis Skills. The “Broaden Your Perspective” section includes Analysis Cases that direct
Judgment Skills. The “Broaden Your Perspective” section includes Judgment Cases that require
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Learning Est. time
Questions Objective(s) Topic (min.)
19-1
1
Restricted stock and RSUs
5
19-2
2
Stock options
5
19-3
2
Qualified option plans
5
19-4
2
Performance and market conditions
5
19-6
5
Weighted average number of common shares
5
19-7
Weighted average number of common shares
5
19-8
7
Preferred dividends when calculating EPS
5
19-9
4
Distinguish between basic and diluted EPS
5
19-10
8
Incorporate the dilutive effect of stock options
5
19-11
9
Convertible securities
5
19-12
9
Convertible securities
5
19-13
10
Antidilutive securities
5
19-14
11
5
19-15
12
Contingently issuable shares
5
19-16
9
Convertible securities actually converted
5
19-17
13
EPS disclosures
5
19-18
13
EPS disclosures
5
Fair value
5
19-20
B
SARs
5
Brief Learning Est. time
Exercises Objective(s) Topic (min.)
19-1
1
Restricted stock award
5
19-2
2
Restricted stock units
5
19-3
2
Stock options
5
19-4
2
Stock options; forfeiture
5
19-5
2
Stock options; exercise
5
19-6
2
Stock options; expiration
5
19-7
2
Performance-based options
5
19-8
2
Performance-based options
5
19-9
2
Performance-based options
5
19-10
2
Options with market-based conditions
5
19-11
EPS; shares issued, shares retired
5
19-12
7
EPS; nonconvertible preferred shares
5
19-13
8
EPS; stock options
5
19-14
9
EPS; convertible preferred shares
5
19-15
11
EPS; restricted stock award
5
19-42 Intermediate Accounting, 8/e
Learning Est. time
Exercises Objective(s) Topic (min.)
19-1
1
Restricted stock award plan
19-2
1
Restricted stock units
19-3
1
Restricted stock award plan; forfeitures
anticipated
19-5
2
Stock options
19-6
2
Stock options
19-7
2
Stock options
19-8
2
Stock options
19-9
3
Employee share purchase plan
19-10
5, 6
Shares issued; stock dividend
19-11
Treasury stock; new shares; stock dividends; two
Restricted stock units; Facebook
years
19-12
5, 6, 7
Stock dividend; nonconvertible preferred stock
19-13
5, 6, 7
Net loss; nonconvertible preferred stock; shares
sold
19-14
5, 6, 7
Stock dividend; nonconvertible preferred stock;
treasury shares; shares sold
19-15
Stock dividend; nonconvertible preferred stock;
treasury shares; shares sold; stock options
convertible bonds
19-18
6, 7, 8, 9
Shares issued; stock options
19-19
7, 9
Convertible preferred stock; convertible bonds
19-20
11
EPS; restricted stock
19-21
1, 11
Record restricted stock; effect of EPS
19-22
6, 12
New shares; contingently issuable shares
19-23
6, 12
New shares; contingent agreements
19-24
Concepts; terminology
2
FASB codification research
Stock appreciation rights; settlement in shares
Stock appreciation rights; cash settlement
Restricted stock units; cash settlement
CPA/CMA Learning Est. time
Exam Questions Objective(s) Topic (min.)
CPA-1
2
Stock options
CPA-2
2
Stock options
CPA-3
6
Basic EPS
CPA-4
7
Basic EPS
CPA-5
8
Diluted EPS
CPA-6
9
Diluted EPS
CPA-7
9
Diluted EPS
CPA-8
IFRS
CPA-9
IFRS
2
Stock awards
19-44 Intermediate Accounting, 8/e
Learning Est. time
Problems Objective(s) Topic (min.)
19-1
2
Stock options; forfeiture; exercise
25
19-2
2
Stock options; graded vesting
35
19-3
2
Stock options; graded vesting; measurement
using a single fair value per option
35
19-4
Stock options; graded vesting; IFRS
35
19-5
2
40
Stock option plan; deferred tax effect
40
40
2
Performance share plan
25
discontinued operations
25
19-10
4, 5, 6
EPS from statement of retained earnings
20
19-11
4, 5, 6
EPS from Statement of Shareholders’ Equity
25
19-12
4, 5, 6, 7
Nonconvertible preferred stock; treasury
shares; shares sold; stock dividend
15
19-13
4, 5, 6, 7, 8, 10
Nonconvertible preferred stock; treasury
shares; shares sold; stock dividend; options
20
19-14
19-15
7, 9, 10
EPS; convertible preferred stock; convertible
bonds; order of entry
25
19-16
Antidilution
25
19-17
Convertible bonds; treasury shares
20
19-18
Options; convertible preferred; additional
shares
15
19-19
Stock options; nonconvertible preferred;
convertible bonds; shares sold
25
method
4, 5, 6, 7, 8, 10,
Nonconvertible preferred stock; treasury
Star Problems
Learning Est. time
Cases Objective(s) Topic (min.)
Real World Case 19-1
1
Restricted stock; Microsoft
25
Communication Case 19-2
2
Stock options; basic concepts; prepare a memo
60
Ethics Case 19-3
2
Stock options
25
Trueblood Accounting
Share-based plans
45
Real World Case 19-5
Share-based plans; Walmart
45
Analysis Case 19-6
20
Real World Case 19-7
3
Stock purchase plan; PetSmart
15
Ethics Case 19-8
6
International Network Solutions
25
securities; Best Buy
25
Analysis Case 19-10
4, 5, 6, 7, 8
EPS concepts
25
Analysis Case 19-11
5, 6, 7, 8
EPS; AIG, Inc.
25
Judgment Case 19-12
4-7, 9
Where are the profits?
40
Communication Case 19-13
9
Dilution
45
Analysis Case 19-14
8, 10, 12
Earnings per share; PetSmart
20
30
Analysis Case 19-18
25
Air France/KLM Case
14
IFRS; accounting for share-based
compensation and earnings per share; Air
France/KLM