Class Assignment 19 - with no solution PDF

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Class Assignment 19 Q1-2: Restricted Stock. Taxon Corp. granted restricted stock units (RSUs) representing 10 million shares of its $1 par common stocks to executives, subject to forfeiture if employment is terminated within four years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $8 per share on the grant date. The expected forfeiture rate is 0. Please ignore income taxes. 1. What is the effect on earnings in the year after the shares are granted to executives?

2. What is Taxon Corp's journal entry at the end of the four years, when the shares vest and restrictions are lifted?

Q3. (Stock Option) Under its executive stock option plan, ABC Corporation granted options on January 1, 2016, that permit executives to purchase 25 million of the company’s $1 par common shares within the next six years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, $19 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose that the options are exercised on April 3, 2019, when the market price is $21 per share. Ignoring taxes, what journal entry will ABC record for the option exercise? (Numbers in the journal entry will be in millions)

Q4. Under its executive stock option plan, M Corporation granted options on January 1, 2016, that permit executives to purchase 20 million of the company's $1 par common shares within the next eight years, but not before December 31, 2019 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated and no forfeitures actually happened in 2016. However, unexpected turnover happened during 2017 and caused the forfeiture of 10% of the stock options. Ignoring taxes, what is the compensation expenses recognized in 2017 for this stock option?

Q5. Under its executive stock option plan, Z Corporation granted options on January 1, 2016, that permit executives to purchase 20 million of the company's $1 par common shares within the next eight years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated.

All the options expired in 2022 without being exercised. The journal entry to record the expiration should be:

Q6. We use the same information as in the previous question. Assuming all the options of Z Corporation are exercised. Ignoring taxes, what journal entry will Z record for the option exercising?

Q7. On December 31, 2015, the ABC Company had 300,000 shares of common stock issued and outstanding. On March 31, 2016, the company sold 60,000 additional shares for cash. ABC's net income for the year ended December 31, 2016, was $1,040,000. During 2016, ABC declared and paid $90,000 in cash dividends on its nonconvertible preferred stock. What is the 2016 basic earnings per share (rounded)? A: 4.16 B: 3.50 C: 2.19 D: 2.75 Q8. During 2018, ABC Corporation had 720,000 shares of common stock and 40,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. ABC declared and paid cash dividends of $240,000 and $100,000 to common and preferred shareholders, respectively, during 2018. ABC's net income for the year ended December 31, 2018, was $4.8 million. The income tax rate is 10%. On January 1, 2017, ABC issued $1,600,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 6 common shares. What will ABC report for diluted earnings per share for 2018? A: 6.54 B: 6.67 C: 6.00 D: None of the other answers is correct Q9. During 2018, ABC Corporation had 720,000 shares of common stock and 40,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. ABC declared and paid cash dividends of $240,000 and $100,000 to common and preferred shareholders, respectively, during 2018. ABC's net income for the year ended December 31, 2018, was $4.8 million. The income tax rate is 10%.

On January 1, 2017, ABC issued $1,600,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 10 common shares. Which of the following answer is correct on diluted earnings per share? A: 6.54 B: 6.53 C: 6.67 D: 6.48 Q10. ABC Company had 25,000 shares of common stock outstanding on January 1, 2016. On April 1, 2016, the company issued 10,000 shares of common stock. The company had outstanding fully vested incentive stock options for 2,000 shares exercisable at $5 that had not been exercised by its executives. The average price for the year was $6. The company reported net income in the amount of $155,000 for 2016. Which of the following answer is correct on diluted earnings per share? A: 4.77 B: 3.50 C: 2.16 D: 4.72 Q11. ABC Company had 25,000 shares of common stock outstanding on January 1, 2016. On April 1, 2016, the company issued 10,000 shares of common stock. The company had outstanding fully vested incentive stock options for 2,000 shares exercisable at $5 that had not been exercised by its executives. The average price for the year was $4. The company reported net income in the amount of $155,000 for 2016. Which of the following answer is correct on diluted earnings per share? A: 4.16 B: 3.50 C: 4.72 D: None of the other answers is correct. Q12. ABC Inc. had the following common stock record during the current calendar year: Outstanding-beginning of year Additional shares issued 4/30 Additional shares issued June/01

1,000,000 100,000 100,000

A 10% stock dividend was paid on July 1. What is the number of shares to be used in computing basic EPS? A) 1,000,000 B) 1,125,000 C) 1,237,500 D) 1,200,000

Q13. ABC Inc. had the following common stock record during the current calendar year: Outstanding-January 1 Additional shares issued 3/31 Additional shares issued 9/30

1,000,000 100,000 100,000

A 10% stock dividend was paid on June 30. What is the number of shares to be used in computing basic EPS? A) 1,207,500 B) 1,210,000. C) 1,200,000. D) 1,100,000. Q14. Under its executive stock option plan, Z Corporation granted options on January 1, 2016, that permit executives to purchase 20 million of the company's $1 par common shares within the next eight years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. All the options expired in 2022 without being exercised. The journal entry to record the expiration would include: A: Debit to paid-in capital—stock options for $80 million B: A debit to common stock for $30 million C: A debit to paid-in capital—expiration of stock options for $120 million D: None of these answer choices is correct...