Chapter19: Share-Based Compensation and Earnings Per Share
Exercises
An alternate exercise and problem set is available on the text website: www.mhhe.com/spiceland6e
Allied Paper Products, Inc. offers a restricted stock award plan to its vice presidents. On January 1, 2011, the company granted 16 million of its $1 par common shares, subject to forfeiture if employment is terminated within two years. The common shares have a market price of $5 per share on the grant date. p. 1114Required:
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share. Required:
Required:
Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company on January 1, 2011, granted 4 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within three years. The common shares have a market price of $22.50 per share on the grant date. Required:
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2011, that permit executives to acquire 4 million of the company's $1 par common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes. Required:
On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. p. 1115Required:
Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2011, options were granted for 40 million $1 par common shares. The exercise price is the market price on the grant date—$8 per share. Options cannot be exercised prior to January 1, 2013, and expire December 31, 2017. The fair value of the 40 million options, estimated by an appropriate option pricing model, is $1 per option. Required:
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2011. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2014 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option. Required:
In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share. Required: Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan.
For the year ended December 31, 2011, Norstar Industries reported net income of $655,000. At January 1, 2011, the company had 900,000 common shares outstanding. The following changes in the number of shares occurred during 2011:
Required: Compute Norstar's earnings per share for the year ended December 31, 2011.
The Alford Group had 202,000 shares of common stock outstanding at January 1, 2011. The following activities affected common shares during the year. There are no potential common shares outstanding.
Required:
Hardaway Fixtures' balance sheet at December 31, 2010, included the following:  On July 21, 2011, Hardaway issued a 25% stock dividend on its common stock. On December 12 it paid $50,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2011, was $2,000,000. Required: Compute Hardaway's earnings per share for the year ended December 31, 2011.
At December 31, 2010, Albrecht Corporation had outstanding 373,000 shares of common stock and 8,000 shares of 9.5%, $100 par value cumulative, nonconvertible preferred stock. On May 31, 2011, Albrecht sold for cash 12,000 shares of its common stock. No cash dividends were declared for 2011. For the year ended December 31, 2011, Albrecht reported a net loss of $114,000. Required: Calculate Albrecht's net loss per share for the year ended December 31, 2011.
On December 31, 2010, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2011, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2011. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2011, was $150 million. Required: Compute Berclair's earnings per share for the year ended December 31, 2011.
(Note: This is a variation of the previous exercise, modified to include stock options.) On December 31, 2010, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2011. On March 1, 2011. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2011, was $150 million. Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2006. The options are exercisable as of September 13, 2010, for 30 million common shares at an exercise price of $56 per share. During 2011, the market price of the common shares averaged $70 per share. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2011.
(Note: This is a variation of the previous exercise, modified to include the exercise of stock options.) On December 31, 2010, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2011. On March 1, 2011. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2011, was $150 million. Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2006. The options are exercisable as of September 13, 2010, for 30 million common shares at an exercise price of $56 per share. During 2011, the market price of the common shares averaged $70 per share. The options were exercised on September 1, 2011. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2011.
(Note: This is a variation of E 19-15 modified to include convertible bonds). On December 31, 2010, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2011, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2011. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2011, was $150 million. The income tax rate is 40%. Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2006. The options are exercisable as of September 13, 2010, for 30 million common shares at an exercise price of $56 per share. During 2011, the market price of the common shares averaged $70 per share. $62.5 million of 8% bonds, convertible into 6 million common shares, were issued at face value in 2007. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2011.
Stanley Department Stores reported net income of $720,000 for the year ended December 31, 2011. Additional Information:
Required: Compute Stanley's basic and diluted earnings per share for the year ended December 31, 2011.
Information from the financial statements of Ames Fabricators, Inc., included the following:  Ames's net income for the year ended December 31, 2011, is $500,000. The income tax rate is 40%. Ames paid dividends of $5 per share on its preferred stock during 2011. Required: Compute basic and diluted earnings per share for the year ended December 31, 2011. As part of its executive compensation plan, Vertovec Inc. granted 54,000 of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Vertovec's common shares have a market price of $5 per share on January 1, 2010, the grant date, as well as on December 31, 2011. 800,000 shares were outstanding at January 1, 2011. Net income for 2011 was $120,000.
Required: Compute Vertovec's basic and diluted earnings per share for the year ended December 31, 2011.
PHN Foods granted 18 million of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $5 per share on January 1, 2010, the grant date. Required:
During its first year of operations, McCollum Tool Works entered into the following transactions relating to shareholders' equity. The corporation was authorized to issue 100 million common shares, $1 par per share.
Net income for 2011 was $148 million. Required: Compute basic and diluted earnings per share for the year ended December 31, 2011.
Anderson Steel Company began 2011 with 600,000 shares of common stock outstanding. On March 31, 2011, 100,000 new shares were sold at a price of $45 per share. The market price has risen steadily since that time to a high of $50 per share at December 31. No other changes in shares occurred during 2011, and no securities are outstanding that can become common stock. However, there are two agreements with officers of the company for future issuance of common stock. Both agreements relate to compensation arrangements reached in 2010. The first agreement grants to the company president a right to 10,000 shares of stock each year the closing market price is at least $48. The agreement begins in 2012 and expires in 2015. The second agreement grants to the controller a right to 15,000 shares of stock if she is still with the firm at the end of 2019. Net income for 2011 was $2,000,000. Required: Compute Anderson Steel Company's basic and diluted EPS for the year ended December 31, 2011.
Listed below are several terms and phrases associated with earnings per share. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.
Required:
As part of its stock-based compensation package, International Electronics granted 24 million stock appreciation rights (SARs) to top officers on January 1, 2011. At exercise, holders of the SARs are entitled to receive stock equal in value to the excess of the market price at exercise over the share price at the date of grant. The SARs cannot be exercised until the end of 2014 (vesting date) and expire at the end of 2016. The $1 par common shares have a market price of $46 per share on the grant date. The fair value of the SARs, estimated by an appropriate option pricing model, is $3 per SAR at January 1, 2011. The fair value reestimated at December 31, 2011, 2012, 2013, 2014, and 2015, is $4, $3, $4, $2.50, and $3, respectively. All recipients are expected to remain employed through the vesting date. Required:
(Note: This is a variation of the previous exercise, modified to allow settlement in cash.) As part of its stock-based compensation package, International Electronics granted 24 million stock appreciation rights (SARs) to top officers on January 1, 2011. At exercise, holders of the SARs are entitled to receive cash or stock equal in value to the excess of the market price at exercise over the share price at the date of grant. The SARs cannot be exercised until the end of 2014 (vesting date) and expire at the end of 2016. The $1 par common shares have a market price of $46 per share on the grant date. The fair value of the SARs, estimated by an appropriate option pricing model, is $3 per SAR at January 1, 2011. The fair value re-estimated at December 31, 2011, 2012, 2013, 2014, and 2015, is $4, $3, $4, $2.50, and $3, respectively. All recipients are expected to remain employed through the vesting date. Required:
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