All Related Questions of Stock Options

Q: The information below pertains to Barkley Company for 2015./

The information below pertains to Barkley Company for 2015. There were no changes during 2015 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no tre...

Q: The stockholders’ equity section of Martino Inc. at the beginning of

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. During the current year, the following transactions occurred. 1. The company issued t...

Q: On January 1, 2015, Titania Inc. granted stock options

On January 1, 2015, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were...

Q: The following two items appeared on the Internet concerning the GAAP requirement

The following two items appeared on the Internet concerning the GAAP requirement to expense stock options. WASHINGTON, D.C.—February 17, 2005 Congressman David Dreier (R–CA), Chairman o...

Q: On January 1, 2015, Titania Inc. granted stock options

On January 1, 2015, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisa...

Q: Assume that Amazon.com has a stock-option plan for

Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the...

Q: The stockholders’ equity section of Martino Inc. at the beginning of

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. During the current year, the following transactions occurred. 1. The company issu...

Q: The information below pertains to Barkley Company for 2015. /

The information below pertains to Barkley Company for 2015. There were no changes during 2015 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury s...

Q: The following two items appeared on the Internet concerning the GAAP requirement

The following two items appeared on the Internet concerning the GAAP requirement to expense stock options. WASHINGTON, D.C.—February 17, 2005 Congressman David Dreier (R–CA), Chairman of the House Rul...

Q: Treetop Pharmaceuticals (TP) researches, develops, and produces over

Treetop Pharmaceuticals (TP) researches, develops, and produces over- the-counter drugs. During the year, it acquired 100% of the net assets of Treeroot Drugs Limited (TDL) for $200 million. The fair...

Q: Club Loop Corporation (CL) is a large owner, operator

Club Loop Corporation (CL) is a large owner, operator, and developer of golf clubs and resorts. The company is privately owned by several wealthy individuals. During the current year, according to the...

Q: Suppose you were a member of Company X’s board of directors and

Suppose you were a member of Company X’s board of directors and chairperson of the company’s compensation committee. What factors should your committee consider when setting the CEO’s compensation? Sh...

Q: Ralph Lauren Corporation is a global leader in the design, marketing

Ralph Lauren Corporation is a global leader in the design, marketing, and distribution of premium lifestyle products, including men’s, women’s and childrenâ&#...

Q: The fair value of stock options can be considered to comprise two

The fair value of stock options can be considered to comprise two main components. What are they?

Q: Stock option plans provide employees the option to purchase: (

Stock option plans provide employees the option to purchase: (a) A specified number of shares of the firm’s stock, (b) At a specified price, (c) During a specified period of time. One of the most cont...

Q: Refer to the situation described in BE 19–8. Suppose

Refer to the situation described in BE 19–8. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 5% in three years. What action will be taken...

Q: Refer to the situation described in BE 19–8. Suppose

Refer to the situation described in BE 19–8. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable th...

Q: On October 1, 2018, Farmer Fabrication issued stock options for

On October 1, 2018, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for manageria...

Q: Fully vested incentive stock options exercisable at $50 per share to

Fully vested incentive stock options exercisable at $50 per share to obtain 24,000 shares of common stock were outstanding during a period when the average market price of the common stock was $60 and...

Q: On January 1, 2018, Hugh Morris Comedy Club (HMCC

On January 1, 2018, Hugh Morris Comedy Club (HMCC) granted 1 million stock options to key executives exercisable for 1 million shares of the company’s common stock at $20 per share. The stock options...

Q: On December 31, 2017, Berclair Inc. had 200 million

On December 31, 2017, 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, 2018, Berclair purc...

Q: On December 31, 2017, Berclair Inc. had 200 million

On December 31, 2017, 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, 2018, Berclair purc...

Q: On December 31, 2017, Berclair Inc. had 200 million

On December 31, 2017, 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, 2018, Berclair purc...

Q: Stanley Department Stores reported net income of $720,000 for

Stanley Department Stores reported net income of $720,000 for the year ended December 31, 2018. Additional Information: Common shares outstanding at Jan. 1, 2018 ……………………………………………………………… 80,000 Incent...

Q: On January 1, 2018, Adams-Meneke Corporation granted 25

On January 1, 2018, 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...

Q: From an employee perspective, how are incentive stock options treated differently

From an employee perspective, how are incentive stock options treated differently than nonqualified stock options for tax purposes? In general, for a given number of options, which type of stock optio...

Q: Why do employers use stock options in addition to salary to compensate

Why do employers use stock options in addition to salary to compensate their employees? For employers, are stock options treated more favorably than salary for tax purposes? Explain.

Q: Harmer Inc. is now a successful company. In the early

Harmer Inc. is now a successful company. In the early days (before it became profitable), it issued incentive stock options (ISOs) to its employees. Now Harmer is trying to decide whether to issue non...

Q: Assume that on January 1, year 1, XYZ Corp.

Assume that on January 1, year 1, XYZ Corp. issued 1,000 nonqualified stock options with an estimated value of $4 per option. Each option entitles the owner to purchase one share of XYZ stock for $14...

Q: Describe the book-tax differences that arise from incentive stock options

Describe the book-tax differences that arise from incentive stock options and nonqualified stock options granted before ASC 718 became effective.

Q: Describe the book-tax differences that arise from incentive stock options

Describe the book-tax differences that arise from incentive stock options granted after ASC 718 became effective.

Q: Describe the book-tax differences that arise from nonqualified stock options

Describe the book-tax differences that arise from nonqualified stock options granted after ASC 718 became effective.

Q: Assume that on January 1, year 1, ABC, Inc

Assume that on January 1, year 1, ABC, Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the...

Q: How would stock options granted to a firm’s management and employees be

How would stock options granted to a firm’s management and employees be viewed by the shareholder wealth maximization model compared to the stakeholder wealth maximization model?

Q: Audit standards distinguish auditors’ responsibility for planning procedures for detecting noncompliance with

Audit standards distinguish auditors’ responsibility for planning procedures for detecting noncompliance with laws and regulations having a direct effect on financial statements versus planning proced...

Q: If stock options and restricted stock are outstanding when calculating diluted EPS

If stock options and restricted stock are outstanding when calculating diluted EPS, what are the components of the “proceeds” available for the repurchase of shares under the treasury stock method?

Q: On October 1, 2018, Farmer Fabrication issued stock options for

On October 1, 2018, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for manageria...

Q: From an employer perspective, how are incentive stock options treated differently

From an employer perspective, how are incentive stock options treated differently than nonqualified stock options for tax purposes? In general, for a given number of options, which type of stock optio...

Q: You serve on your organization’s compensation committee, and you are meeting

You serve on your organization’s compensation committee, and you are meeting to negotiate the retirement package for your CEO who is retiring after a very successful 40-year career with your organizat...

Q: On January 1, 2012, Magilla Inc. granted stock options

On January 1, 2012, Magilla Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisa...

Q: The stockholders’ equity section of Martino Inc. at the beginning of

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,000,000 shares, 300,000 shares issued and outstanding ………...

Q: Assume that Amazon has a stock-option plan for top management

Assume that Amazon has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the fair...

Q: The information below pertains to Barkley Company for 2013. Net

The information below pertains to Barkley Company for 2013. Net income for the year ……………………………………………………………………………………. $1,200,000 8% convertible bonds issued at par ($1,000 per bond); each bond is conv...

Q: The following two items appeared on the Internet concerning the GAAP requirement

The following two items appeared on the Internet concerning the GAAP requirement to expense stock options. WASHINGTON, D.C.—February 17, 2005 Congressman David Dreier (R–CA), Chairman of the House Rul...

Q: The financial statements of P&G are presented in Appendix 5B

The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and acco...

Q: Kellogg Company in its 2004 Annual Report in Note 1—Accounting

Kellogg Company in its 2004 Annual Report in Note 1—Accounting Policies made the comment on page 962 about its accounting for employee stock options and other stock-based compensatio...

Q: In this simulation, you are asked to address questions related to

In this simulation, you are asked to address questions related to the accounting for stock options and earnings per share computations. Prepare responses to all parts.

Q: Many companies grant stock or stock options to managers. Discuss the

Many companies grant stock or stock options to managers. Discuss the benefitsand possible costs of using this kind of incentive compensation scheme.

Q: ‘‘They don’t just sell coffee; they sell the Starbucks

‘‘They don’t just sell coffee; they sell the Starbucks Experience,’’ remarked Deb Mills while sitting down to...

Q: Historically, technology firms have been the most aggressive users of stock

Historically, technology firms have been the most aggressive users of stock-based compensation in the form of stock options granted to almost all employees of the firms. What is the rationale for offe...

Q: Describe the directional effect (increase, decrease, or no effect

Describe the directional effect (increase, decrease, or no effect) of each transaction on the components of the book value of common shareholders’ equity shown in the chart below. a....

Q: One reason companies use stock options to compensate employees is to conserve

One reason companies use stock options to compensate employees is to conserve cash. Under current tax law, companies get to deduct compensation when the employees actually exercise options. Explain ho...

Q: Exhibits 7.17 and 7.18 provide footnote excerpts to

Exhibits 7.17 and 7.18 provide footnote excerpts to the financial reports of The Coca-Cola Company and Eli Lilly and Company that discuss the stock option grants given to the employees of the two firm...

Q: Exhibit 7.19 summarizes the information disclosed by a large conglomerate

Exhibit 7.19 summarizes the information disclosed by a large conglomerate regarding its stock option plans for Years 2–4. Assume an income tax rate of 35%. REQUIRED a. The average o...

Q: TJX, Inc., an apparel retailer, reported net income (

TJX, Inc., an apparel retailer, reported net income (amounts in thousands) of $609,699 for Year 4. The weighted average of common shares outstanding during Year 4 was 488,809 shares. TJX, Inc., subtra...

Q: Exhibit 7.17 includes a footnote excerpt from the annual report

Exhibit 7.17 includes a footnote excerpt from the annual report of The Coca-Cola Company for 2004. The beverage company offers stock options to key employees under plans approved by stockholders. REQ...

Q: Eli Lilly and Company produces pharmaceutical products for humans and animals.

Eli Lilly and Company produces pharmaceutical products for humans and animals. Exhibit 7.18 includes a footnote excerpt from the annual report of Lilly for the period ending December 31, 2004. REQUIR...

Q: Tesla Motors manufactures high performance electric vehicles that are extremely slick looking

Tesla Motors manufactures high performance electric vehicles that are extremely slick looking. Exhibit 3.20 presents the statement of cash flows for Tesla Motors for 2010–2012. REQU...

Q: Stock options have been called the pay program that “built Silicon

Stock options have been called the pay program that “built Silicon Valley” because of their key role as incentive pay for employees in high-tech companies. They were popular during the 1990s when the...

Q: Three years ago, Paul Wilde exercised all his stock options in

Three years ago, Paul Wilde exercised all his stock options in the start up company he helped establish and walked away with over $100 million. Since that time, he has spent all his energy, time, and...

Q: Burt, the CFO of Amber, Inc., was granted incentive

Burt, the CFO of Amber, Inc., was granted incentive stock options in 2012. Burt exercised the options in February 2016, when the exercise price was $75,000 and the fair market value of the stock was $...

Q: Six members of the Weston family, who owned 6.8

Six members of the Weston family, who owned 6.8 percent of the stock of Weston Paper and Manufacturing Company, brought suit against three corporate directors and CFIS, a firm hired by the company to...

Q: Ajax Corporation is a young high-growth company engaged in the

Ajax Corporation is a young high-growth company engaged in the manufacture and distribution of automotive parts. Its common stock has doubled in value since the company was listed on the NASDAQ exchan...

Q: Jay Maxey retired a few years ago at age 48, courtesy

Jay Maxey retired a few years ago at age 48, courtesy of the numerous stock options he had been granted while president of e-shops.com, an Internet start-up company. He soon moved to Montana to follow...

Q: Beau Monde, Inc., a manufacturer and distributor of health and

Beau Monde, Inc., a manufacturer and distributor of health and beauty products, made the following disclosure about its compensation program: Our compensation philosophy is based on two simple princi...

Q: Stock options are widely used as a form of compensation for corporate

Stock options are widely used as a form of compensation for corporate executives. Required: a. Identify five methods that had been proposed for determining the value of executive stock options before...

Q: On January 1, 2016, as an incentive to improved performance

On January 1, 2016, as an incentive to improved performance of duties, Recycling Corporation adopted a qualified stock option plan to grant corporate executives nontransferable stock options to 500,00...

Q: In the 1990 discussion memorandum “Distinguishing between Liability and Equity Instruments

In the 1990 discussion memorandum “Distinguishing between Liability and Equity Instruments and Accounting for Instruments with Characteristics of Both,” the FASB presented arguments relating to the pr...

Q: On October 1, 2017, Harvey Company adopted a stock-

On October 1, 2017, Harvey Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on...

Q: The rationale behind granting stock options is to induce employees to

The rationale behind granting stock options is to induce employees to work harder and be more productive. As the stock price increases (presumably due to their hard work), the employees share in this...

Q: “There is a right way and a wrong way to use

“There is a right way and a wrong way to use stock options in asset allocation.” Evaluate this statement.

Q: What is a stock option? Why is it important for an

What is a stock option? Why is it important for an investor to understand how stock options function?

Q: This problem is based on the 2008 annual report of Intel Corporation

This problem is based on the 2008 annual report of Intel Corporation in the appendix. Find in the Selected Financial Data (also known as the Five-Year Financial Summary), or calculate, the following d...

Q: Why should an investor read the note concerning stock options? How

Why should an investor read the note concerning stock options? How might stock options affect profitability?

Q: What are some of the pros and cons of using stock

What are some of the pros and cons of using stock options to compensate managers?

Q: Suppose you decide (as did Steve Jobs and Mark Zuckerberg)

Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop co...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Listed below are items that are commonly accounted for differently for financial

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: (1)...

Q: The use of stock options to compensate executives has become much more

The use of stock options to compensate executives has become much more common in recent years. The increased use of options to compensate executives is based on efforts of boards of directors to align...

Q: In recent years, salaries for chief financial officers (CFOs)

In recent years, salaries for chief financial officers (CFOs) of large U.S. corporations averaged only about 20 percent of the total CFO compensation package; the other 80 percent is performance-based...

Q: The following excerpts are from the 2013 Form 10-K of

The following excerpts are from the 2013 Form 10-K of Facebook, Inc11. See Accompanying Notes to Consolidated Financial Statements. See Accompanying Notes to Consolidated Financial Statement...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Executive stock options are often seen as a simple and effective solution

Executive stock options are often seen as a simple and effective solution to the “other people’s money” problem that can occur when managers with little ownership interest mismanage firm investment op...

Q: The computation of comprehensive income for 2009 for Coca-Cola is

The computation of comprehensive income for 2009 for Coca-Cola is presented in Exhibit 4-11. 1. Which is greater in 2009—Coca-Cola’s net income or comprehensive...

Q: On July 20, 2004, Microsoft surprised the market by announcing

On July 20, 2004, Microsoft surprised the market by announcing a $3 dividend. The exdividend date was November 17, 2004, and the payment date was December 2, 2004. Its stock price at the time was abou...

Q: What is the (risk-neutral) expected life for the

What is the (risk-neutral) expected life for the employee stock option in Example 16.2? What is the value of the option obtained by using this expected life in Black–Scholes– Merton? Example 16.2 Sup...

Q: Why was it attractive for companies to grant at-the-

Why was it attractive for companies to grant at-the-money stock options prior to 2005? What changed in 2005?

Q: A company’s CFO says: ‘‘The accounting treatment of stock options

A company’s CFO says: ‘‘The accounting treatment of stock options is crazy. We granted 10,000,000 at-the-money stock options to our employees last year when the stock price was $30. We estimated the v...

Q: ‘‘Granting stock options to executives is like allowing a professional footballer

‘‘Granting stock options to executives is like allowing a professional footballer to bet on the outcome of games.’’ Discuss this viewpoint.

Q: On May 31 a company’s stock price is $70. One

On May 31 a company’s stock price is $70. One million shares are outstanding. An executive exercises 100,000 stock options with a strike price of $50. What is the impact of this on the stock price?

Q: A company has an issue of executive stock options outstanding. Should

A company has an issue of executive stock options outstanding. Should dilution be taken into account when the options are valued? Explain your answer.

Q: The notes accompanying a company’s financial statements say: ‘‘Our executive

The notes accompanying a company’s financial statements say: ‘‘Our executive stock options last 10 years and vest after 4 years. We valued the options granted this year using the Black–Scholes–Merton...

Q: Explain why employee stock options on a non-dividend-paying

Explain why employee stock options on a non-dividend-paying stock are frequently exercised before the end of their lives, whereas an exchange-traded call option on such a stock is never exercised earl...

Q: ‘‘Employee stock options issued by a company are different from regular

‘‘Employee stock options issued by a company are different from regular exchangetraded call options on the company’s stock because they can affect the capital structure of the company.’’ Explain this...

Q: a. How does the offering of stock options to CEOs attempt

a. How does the offering of stock options to CEOs attempt to align CEO incentives with shareholder incentives? b. Enron was a company that was ruined in part because of the stock options offered to up...

Q: Delta Air Lines, Inc. (DAL) provides passenger services

Delta Air Lines, Inc. (DAL) provides passenger services throughout the United States and the world. Fifteen Delta metrics and recent initiatives are as follows: 1. Using a mobile phone app that allows...

Q: If you launched a start-up venture before graduating with your

If you launched a start-up venture before graduating with your degree, why would you or why would you not offer stock options to your employees?

Q: Laura Simpson just took a job with Cisco Systems in San Jose

Laura Simpson just took a job with Cisco Systems in San Jose, CA. One of the attractions of this job is the stock option plan Cisco offers to its employees. What is meant by the term stock option? Why...

Q: What are stock options and why would a corporation offer stock options

What are stock options and why would a corporation offer stock options to its employees?

Q: Refer to Practice 13-8. Assume that the stock-

Refer to Practice 13-8. Assume that the stock-based compensation plan involves stock appreciation rights (SARs). At the end of three years, the employees are given a cash award equal to the excess of...

Q: Rhiener Corporation initiated a performance-based employee stock option plan on

Rhiener Corporation initiated a performance-based employee stock option plan on January 1, 2012. The performance base for the plan is net sales in the year 2014. The plan provides for stock options to...

Q: The Stockholders’ Equity section of Webster Inc. showed the following data

The Stockholders’ Equity section of Webster Inc. showed the following data on December 31, 2012: common stock, $3 par, 300,000 shares authorized, 250,000 shares issued and outstanding, $750,000; paid-...

Q: The board of directors of Muir Company adopted a fixed stock option

The board of directors of Muir Company adopted a fixed stock option plan to supplement the salaries of certain executives of the company. Options to buy common stock were granted as follows: Options...

Q: Globe Corporation, a new environmental control company, initiated a performance

Globe Corporation, a new environmental control company, initiated a performance-based stock option plan for its management on January 1, 2012. The plan provided for the granting of a variable number o...

Q: 1. On January 2, 2014, Kine Co. granted

1. On January 2, 2014, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine’s $10 par common stock. The options call for a price of $20 per...

Q: On January 1, the company granted 150,000 stock options

On January 1, the company granted 150,000 stock options to key employees. Each option allows an employee to buy one share of $1 par common stock for $25, which was the market price of the shares on th...

Q: Refer to Practice 13-8. Assume that the stock-

Refer to Practice 13-8. Assume that the stock-based compensation plan is performance based. As of the end of the first year, the number of options that are probable to vest is 150,000. At the end of t...

Q: If stock options are actually exercised during the year, how is

If stock options are actually exercised during the year, how is diluted EPS affected?

Q: The company had 200,000 shares of common stock outstanding throughout

The company had 200,000 shares of common stock outstanding throughout the year. In addition, as of January 1, the company had issued stock options that allowed employees to purchase 50,000 shares of c...

Q: Refer to Practice 18-6. Assume that the options were

Refer to Practice 18-6. Assume that the options were issued on September 1 instead of being outstanding throughout the year. Compute diluted earnings per share, assuming that (1) The average stock pr...

Q: The company had 100,000 shares of common stock outstanding on

The company had 100,000 shares of common stock outstanding on January 1. In addition, as of January 1, the company had issued stock options that allowed employees to purchase 40,000 shares of common s...

Q: Thomas Chan hung up the telephone and sighed. The vice

Thomas Chan hung up the telephone and sighed. The vice president of software engineering at Advanced Photonics Inc. (API) had just spoken to Suzanne Chalmers, who called to arrange a meeting with Chan...

Q: W hat is the difference in measuring compensation expense associated with stock

W hat is the difference in measuring compensation expense associated with stock options that vest on a single date (cliff vesting) and in installments (graded vesting)?

Q: When stock options are granted to employees, what is the basis

When stock options are granted to employees, what is the basis for determining the amount of compensation cost that will be recognized as expense? a. The fair value of the service provided by the empl...

Q: On January 2, Year 1, Argy Company’s board of directors

On January 2, Year 1, Argy Company’s board of directors granted 12,000 stock options to a select group of senior employees. The requisite service period is three years, with one-third of the options v...

Q: SC Masterpiece Inc. granted 1,000 stock options to certain

SC Masterpiece Inc. granted 1,000 stock options to certain sales employees on January 1, Year 1. The options vest at the end of three years (cliff vesting) but are conditional upon selling 20,000 case...

Q: This problem consists of two parts. Part A. On

This problem consists of two parts. Part A. On January 1, Year 1, Stone Company issued 100 stock options with an exercise price of $38 each to 10 employees (1,000 options in total). The employees can...

Q: Indicate whether each of the following describes an accounting treatment that is

Indicate whether each of the following describes an accounting treatment that is acceptable under IFRS, U.S. GAAP, both, or neither by checking the appropriate box.

Q: Some people believe that the use of executive stock options is directly

Some people believe that the use of executive stock options is directly related to the increased number of earnings restatements. For each of the following items, discuss the potential ethical issues...

Q: How do bonuses and stock options provide incentive pay for executives?

How do bonuses and stock options provide incentive pay for executives?

Q: Two years ago, Micro Corporation granted Alisa, their General Manager

Two years ago, Micro Corporation granted Alisa, their General Manager, 20,000 incentive stock options with an exercise price of $15 per share. The stock currently trades at $40 per share, but Alisa ex...

Q: Construct a scenario in which the tax treatment of stock options is

Construct a scenario in which the tax treatment of stock options is very unfavorable for the employee.

Q: The scandal on backdating stock options introduced new terminology to describe these

The scandal on backdating stock options introduced new terminology to describe these controversial practices. Describe what you think each of these terms means. a. Backdating b. Repricing c. Reload...

Q: Exhibits 1.26–1.28 of Integrative Case 1

Exhibits 1.26–1.28 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2012 to 2015. In addition, the website for this text contains Walmartâ&#...

Q: Exhibits 1.26–1.28 of Integrative Case 1

Exhibits 1.26–1.28 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2012–2015. In addition, the website for this text contains W...

Q: A sales-based ranking of software companies provided by Yahoo!

A sales-based ranking of software companies provided by Yahoo! Finance on November 5, 2008, places Oracle Corporation third behind sales leaders Microsoft Corporation and IBM Software. Typical of high...

Q: Tesla Motors manufactures high-performance electric vehicles that are extremely slick

Tesla Motors manufactures high-performance electric vehicles that are extremely slick looking. Exhibit 3.18 presents the statement of cash flows for Tesla Motors for 2010 through 2012. Exhibit 3.18:...

Q: Sirius XM Radio Inc. is a satellite radio company, formed

Sirius XM Radio Inc. is a satellite radio company, formed from the merger of Sirius and XM in 2008. Exhibit 3.20 presents a statement of cash flows for Sirius XM Radio for 2006, 2007, and 2008. Sirius...

Q: Company P has internally generated net income of $200,000

Company P has internally generated net income of $200,000 (excludes share of subsidiary income). Company P has 100,000 shares of outstanding common stock. Subsidiary Company S has a net income of $60,...

Q: Following is the corporate governance report of Honda Motor Company included in

Following is the corporate governance report of Honda Motor Company included in its 2009 Annual Report. 1. Basic Stance Regarding Corporate Governance Based on its fundamental corporate philosophy, th...

Q: Refer to Panera Bread’s statement of cash flows for the year ended

Refer to Panera Bread’s statement of cash flows for the year ended December 29, 2015, as reproduced at the end of the book. Panera Bread’s statement of cash flows:...

Q: Several executives of Computer Associates International, including former CEO Sanjay Kumar

Several executives of Computer Associates International, including former CEO Sanjay Kumar, pleaded guilty to providing fraudulent financial statements. The scheme was built around the backdating of s...

Q: Eleanor Bloxham is the founder and CEO of the Value Alliance Company

Eleanor Bloxham is the founder and CEO of the Value Alliance Company and the Corporate Governance Alliance, and is a respected authority on matters involving corporate governance and valuation. In 201...

Q: Suppose you buy 15 of the September corn futures contracts at the

Suppose you buy 15 of the September corn futures contracts at the last price of the day. One month from now, the futures price of this contract is 462.125, and you close out your position. Calculate y...

Q: Suppose you hold LLL employee stock options representing options to buy 10

Suppose you hold LLL employee stock options representing options to buy 10,000 shares of LLL stock. You wish to hedge your position by buying put options with three-month expirations and a $22.50 stri...

Q: In general, employee stock options cannot be sold to another party

In general, employee stock options cannot be sold to another party. How do you think this affects the value of an employee stock option compared to a market-traded option?

Q: You own stock in a company that has just initiated employee stock

You own stock in a company that has just initiated employee stock options. How do the employee stock options benefit you as a shareholder?

Q: In its 10Q dated February 4, 2016, LLL, Inc

In its 10Q dated February 4, 2016, LLL, Inc., had outstanding employee stock options representing over 272 million shares of its stock. LLL accountants estimated the value of these options using the B...

Q: Tuesday Morning Corporation operates a chain of discount retail stores. The

Tuesday Morning Corporation operates a chain of discount retail stores. The company purchases closeout merchandise at prices generally ranging from 10% to 50% of the normal wholesale price and sells t...

Q: Starbucks Corp., the passionate purveyors of coffee and everything else that

Starbucks Corp., the passionate purveyors of coffee and everything else that goes with a full and rewarding coffeehouse experience, included the following table in its 2009 annual report: Total stock...

Q: On July 1, 2017, Amos Corporation granted nontransferable, nonqualified

On July 1, 2017, Amos Corporation granted nontransferable, nonqualified stock options to certain key employees as additional compensation. The options permit the purchase of 20,000 shares of Amos’s $1...

Q: Refer to the salesforce.com financial statement excerpts given below to

Refer to the salesforce.com financial statement excerpts given below to answer the questions. On January 31, 2015, the price of salesforce.com stock was $56.45, and there were 650,596,000 shares of co...

Q: Trask Corporation, a public company whose shares are traded in the

Trask Corporation, a public company whose shares are traded in the over-the-counter market, had the following shareholders’ equity account balances at December 31, 2016: Common stock …………………..…………………....

Q: On January 1, 2017, Darth Corp. granted nonqualified stock

On January 1, 2017, Darth Corp. granted nonqualified stock options to certain key employees as additional compensation. The options were for 100,000 shares of Darth’s $1 par value common stock at an e...

Q: On January 2, 2017, Dwyer Corporation granted 10,000

On January 2, 2017, Dwyer Corporation granted 10,000 nonqualified stock options each to four of its key executives (40,000 options in total). Under the terms of the option plan, upon exercise, each ex...

Q: The following excerpt is from Ball Corporation’s 2006 annual report. Effective

The following excerpt is from Ball Corporation’s 2006 annual report. Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” and elected to use the . . . Bla...

Q: Kadri Corporation reported basic EPS of $3.00 and diluted

Kadri Corporation reported basic EPS of $3.00 and diluted EPS of $2.40 for 2017. Its EPS calculations follow: Required: Kadri issued the convertible preferred stock at the beginning of 2017 and the...

Q: The Shareholders’ Equity section of Holiday Roads Company’s balance sheet shows:

The Shareholders’ Equity section of Holiday Roads Company’s balance sheet shows: Net income for 2017 was $1,700,000, preferred stock dividends were $200,000, and...

Q: Refer to Panera Bread’s statement of cash flows for the year ending

Refer to Panera Bread’s statement of cash flows for the year ending December 31, 2015. Cash flows for Panera Bread: Required: 1. What are the largest sources and uses of cash reve...

Q: Refer to the statement of cash flows for both Chipotle and Panera

Refer to the statement of cash flows for both Chipotle and Panera Bread for the most recent year and any other pertinent information reprinted at the back of this book. Cash flows for Chipotle: Cas...

Q: Following is the consolidated statement of stockholders’ equity of Costco Wholesale Corporation

Following is the consolidated statement of stockholders’ equity of Costco Wholesale Corporation for the year ended August 30, 2015: Required: 1. Costco has an item in the statement...

Q: Refer to Table 10–6. a. How many

Refer to Table 10–6. a. How many ExxonMobil October 2016 $90.00 put options were outstanding at the open of trading on August 3, 2016? b. What was the closing price of a 10-year Trea...

Q: Executive stock options (ESOs) are used to provide incentives for

Executive stock options (ESOs) are used to provide incentives for executives to improve company performance. ESOs are usually granted “at-the-money,” meaning that the exercise price of the options is...

Q: The Shady Tree Company is preparing to announce their quarterly earnings numbers

The Shady Tree Company is preparing to announce their quarterly earnings numbers. The company expects to beat the analysts’ forecast of earnings by at least 5 cents a share. In anticipation of the inc...

Q: Prepare journal entries under the cost method to record the following treasury

Prepare journal entries under the cost method to record the following treasury stock transactions of Danos Corporation. a. Purchases 10,000 shares of its own $10 par value common stock for $30 per sha...

Q: Morrissey Corporation grants 50,000 stock options to its managerial employees

Morrissey Corporation grants 50,000 stock options to its managerial employees on December 31, 2013, to purchase 50,000 shares of its $1 par value common stock for $60 per share. The market price of a...

Q: Watson Corporation grants 20,000 stock options to its managerial employees

Watson Corporation grants 20,000 stock options to its managerial employees on December 31, 2013, to purchase 20,000 shares of its $10 par value common stock for $25 per share. The market price of a sh...

Q: The Layton Ball Corporation has a relatively complicated capital structure—that

The Layton Ball Corporation has a relatively complicated capital structure—that is, it raises funds using various financing devices. In addition to common shares, it has issued stock...

Q: Lowen Corporation grants stock options to its managerial employees on December 31

Lowen Corporation grants stock options to its managerial employees on December 31 of each year. Employees may acquire one share of common stock with each stock option. Lowen sets the exercise price eq...

Q: Pramble Company grants stock options to its managerial employees on December 31

Pramble Company grants stock options to its managerial employees on December 31 of each year. Employees may acquire one share of common stock with each stock option. Pramble sets the exercise price eq...

Q: Exhibit 15.9 presents the changes in common shareholders’ equity of

Exhibit 15.9 presents the changes in common shareholders’ equity of Monk Corporation for 2013 through 2015. Monk regularly purchases shares of its common stock and reissues them in c...

Q: Intelliant granted stock options to employees on January 1, 2013,

Intelliant granted stock options to employees on January 1, 2013, permitting them to purchase 24.6 million shares of Intelliant common stock for $22.63 per share. An option-pricing model indicates tha...

Q: U.S. GAAP and IFRS require firms to amortize the

U.S. GAAP and IFRS require firms to amortize the fair value of stock options as an expense over the periods the firm expects to receive employee services as a result of granting the options. What is t...

Q: Tesla, Inc. began operations in 2003 but did not begin

Tesla, Inc. began operations in 2003 but did not begin selling its stock to the public until June 28, 2010. It has lost money every year it has been in existence, and by December 31, 2016, it had tota...

Q: On January 1, 2018, Titania Inc. granted stock options

On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisa...

Q: Assume that Amazon.com has a stock-option plan for

Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the...

Q: The information below pertains to Barkley Company for 2018. Net

The information below pertains to Barkley Company for 2018. Net income for the year…………………………………$1,200,000 7% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares...

Q: The financial statements of P&G are presented in Appendix B

The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to P&G’s...

Q: Select the correct answer for each of the following questions:

Select the correct answer for each of the following questions: 1. On December 31, 20X7, Judy is a fully vested participant in a company-sponsored pension plan. According to the plan’...

Q: Corporations frequently include employee stock options as a part of the compensation

Corporations frequently include employee stock options as a part of the compensation for their managers and sometimes for all of their employees. These options allow the holder to buy the stock of the...

Q: Spencer, CPA, has been engaged to audit the fair value

Spencer, CPA, has been engaged to audit the fair value measurements of Christensen & Son, a high-tech company in the Midwest. During the audit, Spencer must obtain evidence that management of Christen...

Q: Delta Company has issued stock options to four of its officers,

Delta Company has issued stock options to four of its officers, permitting them to purchase 5,000 shares each of common stock at a price of $25 per share at any time during the next five years. The pr...

Q: Salvador Corporation made an investment in Letter.com, Inc.,

Salvador Corporation made an investment in Letter.com, Inc., in exchange for 100,000 options to purchase Letter.com’s stock at $20 per share. Since the stock options are not marketable, Salvador’s man...

Q: Ji Wu of Troy, New York, has $5,

Ji Wu of Troy, New York, has $5,000 that he wants to invest in the stock market. Ji is in college on a scholarship and does not plan to use the $5,000 or any dividend income for another five years, wh...

Q: Employees who are compensated with restricted stock or stock options face financial

Employees who are compensated with restricted stock or stock options face financial risks not associated with cash compensation. Describe and compare the financial risks of these two types of equity b...

Q: As a new graduate, you’ve taken a management position with

As a new graduate, you’ve taken a management position with Exotic Cuisines, Inc., a restaurant chain that just went public last year. The company’s restaurants specialize in exotic main dishes, using...

Q: As a new graduate, you’ve taken a management position with

As a new graduate, you’ve taken a management position with Exotic Cuisines, Inc., a restaurant chain that just went public last year. The company’s restaurants specialize in exotic main dishes, using...

Q: 1. Do you think that stock options actually motivate employees to

1. Do you think that stock options actually motivate employees to work for the long-term good of the company? 2. Do you think that stock options inadvertently encourage manager to engage in questionab...

Q: Evaluate the attempt by the FASB to separate stock options from stock

Evaluate the attempt by the FASB to separate stock options from stock appreciation rights that are payable in cash?

Q: Should incentive and nonqualified stock options be treated the same on the

Should incentive and nonqualified stock options be treated the same on the financials?

Q: 1. What is the relationship among agency theory, economic consequences

1. What is the relationship among agency theory, economic consequences, and signalling? Explain in depth 2. Benston (1982, p. 102), in an analysis of corporate social accounting and reporting (CSAR),...

Q: 1.Revenue recognition, when the right of return exists,

1.Revenue recognition, when the right of return exists, was standardized in 1981 by SFAS No. 48. Prior to this, SOP 75-1 provided guidance but was not mandatory (which is why the FASB has brought vari...

Q: Harmer Inc. is now a successful company. In the early

Harmer Inc. is now a successful company. In the early days (before it became profitable), it issued incentive stock options (ISOs) to its employees. Now Harmer is trying to decide whether to issue non...

Q: Total 2005 CEO compensation (in $ millions) for the largest

Total 2005 CEO compensation (in $ millions) for the largest U.S. companies by revenue is reported in the following frequency distribution. Total compensation includes salary, bonuses, stock and incent...

Q: Recently, some branches of Donut Shop, Inc., have dropped

Recently, some branches of Donut Shop, Inc., have dropped the practice of allowing employees to accept tips. Customers who once said, “Keep the change,” now have to get used to waiting for their nicke...

Q: Standford Pharmaceuticals Inc. (SP) researches, develops, and

Standford Pharmaceuticals Inc. (SP) researches, develops, and produces over-the-counter drugs. During the year, it acquired 100% of the net assets of Jenstar Drugs Limited (JDL) for $200 million. The...

Q: Cisoft is a highly profitable technology firm that currently has $5

Cisoft is a highly profitable technology firm that currently has $5 billion in cash. The firm has decided to use this cash to repurchase shares from investors, and it has already announced these plans...

Q: 1. What is the principal-agent problem? a

1. What is the principal-agent problem? a. When people are hired to make decisions in the best interests of others b. When agents make incorrect decisions due to inadequate information c. When an em...

Q: Texas Gulf Sulphur Company (TGS) conducted aerial geophysical surveys over

Texas Gulf Sulphur Company (TGS) conducted aerial geophysical surveys over more than 15,000 square miles of eastern Canada. The operations indicated concentrations of commercially exploitable minerals...

Q: You, CPA, are employed at Beaulieu & Beauregard, Chartered

You, CPA, are employed at Beaulieu & Beauregard, Chartered Professional Accountants. On November 20, Year 3, Dominic Jones, a partner in your firm, sends you the following email: Our firm has been...

Q: Earthcom Inc. is in the telecommunications industry. The company builds

Earthcom Inc. is in the telecommunications industry. The company builds and maintains telecommunication lines that are buried in the ground. The company is a public company and has been having some ba...

Q: On January 1, 2017, Kasan Corp. granted stock options

On January 1, 2017, Kasan Corp. granted stock options to its chief executive officer. This is the only stock option that Kasan offers and the details are as follows: On January 1, 2022, 2,000 of the...

Q: Some complex financial instruments require that the Black-Scholes formula be

Some complex financial instruments require that the Black-Scholes formula be used to measure their fair value. Examples of these complex instruments include derivatives that are options, bonds issued...

Q: The shareholders’ equity section of Finley Inc. at the beginning of

The shareholders’ equity section of Finley Inc. at the beginning of the current year is as follows: Common shares, 1,000,000 shares authorized, 300,000 shares issued and outstanding………………………………………………...

Q: The following information is for Polo Limited for 2017:

The following information is for Polo Limited for 2017: There were no changes during 2017 in the number of common shares, preferred shares, or convertible bonds outstanding. For simplicity, ignore t...

Q: The following information is available for Dylan Inc., a company whose

The following information is available for Dylan Inc., a company whose shares are traded on the Toronto Stock Exchange: Other information: 1. For all of the fiscal year 2017, $100,000 of 6% cumulati...

Q: Gao Limited, a publicly traded company, uses IFRS and had

Gao Limited, a publicly traded company, uses IFRS and had the following events and transactions occur in its fiscal year ending October 31, 2017. Although no dates are given, the events described are...

Q: Burt, the CFO of Amber, Inc., was granted incentive

Burt, the CFO of Amber, Inc., was granted incentive stock options in 2013. Burt exercised the stock options in February 2017 when the exercise price was $75,00o and the fair market value of the stock...

Q: Rosa exercises ISOs for 100 shares of Copper Corporation common stock at

Rosa exercises ISOs for 100 shares of Copper Corporation common stock at the option price of $100 per share on May 21, 2018, when the fair market value is $120 per share. She sells the 100 shares of c...

Q: Jim Raby transfers one-half of his compensatory stock options (

Jim Raby transfers one-half of his compensatory stock options (ISOs and nonqualified stock options) to his ex-wife as part of a divorce settlement. Discuss the tax aspects of this transfer

Q: Before Lemon Corporation was taken private in a transaction engineered by its

Before Lemon Corporation was taken private in a transaction engineered by its largest stockholder, some of Lemon's employees had unexercised options to purchase stock of Lemon. Under an employee agree...

Q: After Enron, WorldCom, and other major corporate scandals that rocked

After Enron, WorldCom, and other major corporate scandals that rocked America in the recent past, it seemed that nothing would surprise investors or regulators. However, almost everyone was shocked by...

Q: ABC Company manufactures and sells software packages to small businesses. The

ABC Company manufactures and sells software packages to small businesses. The company has enjoyed great success since it began business in 1998. Last year, the firm doubled its revenues, and its manag...

Q: 1. Most financial statement frauds occur in smaller organizations with simple

1. Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because: a. It is easier to i...

Q: 1. Recording fictitious revenues is one of the most common ways

1. Recording fictitious revenues is one of the most common ways of perpetrating financial statement fraud. 2. Most often, the controller or chief financial officer (CFO) of a corporation is the perp...

Q: Sharon Jacobs is CEO of Henderson Industries Inc, a public company

Sharon Jacobs is CEO of Henderson Industries Inc, a public company. Henderson makes heavy construction equipment like bulldozers and cranes which it sells to small construction companies. These cust...

Q: Gao Limited, a publicly traded company, uses IFRS and had

Gao Limited, a publicly traded company, uses IFRS and had the following events and transactions occur in its fiscal year ended October 31, 2020. Although no dates are given, the events described are i...

Q: On January 1, 2020, Kasan Corp. granted stock options

On January 1, 2020, Kasan Corp. granted stock options to its chief executive officer. This is the only stock option plan that Kasan offers and the details are as follows: On January 1, 2025, 2,000 of...

Q: The following information is for Polo Limited for 2020: /

The following information is for Polo Limited for 2020: There were no changes during 2020 in the number of common shares, preferred shares, or convertible bonds outstanding. For simplicity, ignore th...

Q: The following information is available for Dylan Inc., a company whose

The following information is available for Dylan Inc., a company whose shares are traded on the Toronto Stock Exchange: Other information: 1. For all of the fiscal year 2020, $100,000 of 6% cumulat...

Q: Hailey’s Hair Products has two criteria upon which its reward system is

Hailey’s Hair Products has two criteria upon which its reward system is based: (1) rewarding executives for performance and (2) adding to shareholder value. At present, the remuneration package for...

Q: The executive compensation programs of the largest public companies often include the

The executive compensation programs of the largest public companies often include the types of equity-based compensation such as stock options and performance shares described in this chapter. Smaller...

Q: Dave Nelson recently retired at age 48, courtesy of the numerous

Dave Nelson recently retired at age 48, courtesy of the numerous stock options he had been granted while president of WowzaShops.com, an Internet start-up company. He soon moved to Montana to follow h...

Q: Rosa exercises ISOs for 100 shares of Copper Corporation common stock at

Rosa exercises ISOs for 100 shares of Copper Corporation common stock at the option price of $100 per share on May 21, 2021, when the fair market value is $120 per share. She sells the 100 shares of c...

Q: Several executives of Computer Associates International, including former CEO Sanjay Kumar

Several executives of Computer Associates International, including former CEO Sanjay Kumar, pleaded guilty to providing fraudulent financial statements. The scheme was built around the backdating of s...

Q: Kadri Corporation (a fictional company) reported basic EPS of $

Kadri Corporation (a fictional company) reported basic EPS of $3.00 and diluted EPS of $2.40 for 20X1. Its EPS calculations follow: Kadri issued the convertible preferred stock at the beginning of 20X...

Q: Trask Corporation (a fictional company) had the following shareholders’ equity

Trask Corporation (a fictional company) had the following shareholders’ equity account balances at December 31, 20X0: Transactions during 20X1 and other information relating to the s...

Q: On January 1, 20X1, Darth Corp. (a fictional

On January 1, 20X1, Darth Corp. (a fictional company) granted nonqualified stock options to certain key employees as additional compensation. The options were for 100,000 shares of Darth’s $1 par valu...

Q: On January 2, 20X1, Dwyer Corporation (a fictional company

On January 2, 20X1, Dwyer Corporation (a fictional company) granted 4,000 nonqualified stock options each to 10 of its key executives (40,000 options in total). Under the terms of the option plan, upo...

Q: The Shareholders’ Equity section in the balance sheet of Holiday Roads Company

The Shareholders’ Equity section in the balance sheet of Holiday Roads Company (a fictional company) appears as follows: Net income for 20X1 was $1,700,000, preferred stock dividends...

Q: Refer to the salesforce.com financial statement excerpts given below to

Refer to the salesforce.com financial statement excerpts given below to answer the questions. On January 31, 2019, the price of salesforce.com stock was $151.97, and there were 770 million shares of c...

Q: On July 1, 20X1, Amos Corporation granted nontransferable, nonqualified

On July 1, 20X1, Amos Corporation granted nontransferable, nonqualified stock options to certain key employees as additional compensation. The options permit the purchase of 20,000 shares of Amos’s $1...

Q: On October 15, 2020, the board of directors of Ensor

On October 15, 2020, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 20 million stock options were granted, exercisable for 2...

Q: On December 31, 2020, Dow Steel Corporation had 600,

On December 31, 2020, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common st...

Q: On December 31, 2020, Dow Steel Corporation had 600,

On December 31, 2020, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common st...

Q: Alciatore Company reported a net income of $150,000 in

Alciatore Company reported a net income of $150,000 in 2021. The weighted-average number of common shares outstanding for 2021 was 40,000. The average stock price for 2021 was $33. Assume an income ta...

Q: On January 1, 2021, Tonge Industries had outstanding 440,

On January 1, 2021, Tonge Industries had outstanding 440,000 common shares ($l par) that originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock ($100 par), convertible i...

Q: At January 1, 2021, Canaday Corporation had outstanding the following

At January 1, 2021, Canaday Corporation had outstanding the following securities: 600 million common shares 20 million 6% cumulative preferred shares, $50 par 6.4% convertible bonds, $2,000 million fa...

Q: Witter House is a calendar-year firm with 300 million common

Witter House is a calendar-year firm with 300 million common shares outstanding throughout 2021 and 2022. As part of its executive compensation plan, at January 1, 2020, the company had issued 30 mill...

Q: Pastner Brands is a calendar-year firm with operations in several

Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2021, the company issued 400,000 executive stock options permitti...

Q: Refer to the situation described in P 19–2. Assume

Refer to the situation described in P 19–2. Assume Pastner measures the fair value of all options on January 1, 2021, to be $4.50 per option using a single weighted-average expected...

Q: Refer to the situation described in P 19–2. Assume

Refer to the situation described in P 19–2. Assume Pastner prepares its financial statements using International Financial Reporting Standards (IFRS). Required: Would your responses...

Q: LCI Cable Company grants 1 million performance stock options to key executives

LCI Cable Company grants 1 million performance stock options to key executives at January 1, 2021. The options entitle executives to receive 1 million of LCI $1 par common shares, subject to the achie...

Q: Refer to the situation described in BE 19–8. Suppose

Refer to the situation described in BE 19–8. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable th...

Q: On January 1, 2021, Farmer Fabrication issued stock options for

On January 1, 2021, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for manageria...

Q: On January 1, 2021, Hugh Morris Comedy Club (HMCC

On January 1, 2021, Hugh Morris Comedy Club (HMCC) granted 1 million stock options to key executives exercisable for 1 million shares of the company’s common stock at $20 per share. The stock options...

Q: On January 1, 2021, Farmer Fabrication issued stock options for

On January 1, 2021, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for manageria...

Q: Refer to the situation described in BE 19–8. Suppose

Refer to the situation described in BE 19–8. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 5% in three years. What journal entry will b...

Q: You are assistant controller of Stamos & Company, a medium-

You are assistant controller of Stamos & Company, a medium-size manufacturer of machine parts. On October 22, 2020, the board of directors approved a stock option plan for key executives. On January 1...

Q: On December 31, 2020, Berclair Inc. had 200 million

On December 31, 2020, 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, 2021, Berclair purc...

Q: On December 31, 2020, Berclair Inc. had 200 million

On December 31, 2020, 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, 2021, Berclair purc...

Q: On December 31, 2020, Berclair Inc. had 200 million

On December 31, 2020, 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, 2021, Berclair purc...

Q: Stanley Department Stores reported net income of $720,000 for

Stanley Department Stores reported net income of $720,000 for the year ended December 31, 2021. Additional Information: Common shares outstanding at Jan. 1, 2021 80,000 Incentive stock options (vested...

Q: On January 1, 2021, Adams-Meneke Corporation granted 25

On January 1, 2021, 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...

Q: Nick’s Liquidators reported 450,000 shares of common stock outstanding for

Nick’s Liquidators reported 450,000 shares of common stock outstanding for the year. The company also had stock options outstanding all year that will result in 125,000 incremental shares upon exercis...

Q: U.S. GAAP did not require companies to expense employee

U.S. GAAP did not require companies to expense employee stock options through the income statement prior to 2005. Paragraphs B2 through B11 in the Statement of Financial Accounting Standards No. 123(R...

Q: Prior to 2005, firms did not have to recognize an expense

Prior to 2005, firms did not have to recognize an expense for all employee stock options but could disclose the effect of the options in the footnotes. The concept of recognition versus disclosure in...

Q: Pfizer Inc., a global pharmaceutical company, offers several different types

Pfizer Inc., a global pharmaceutical company, offers several different types of stock-based compensation to its employees. Pfizer reports under U.S. GAAP. Use the disclosures provided in Exhibit 19.3...

Q: You are asked to analyze NCR Corporation’s EPS. NCR is a

You are asked to analyze NCR Corporation’s EPS. NCR is a business solution company manufacturing automated teller machines (ATMs), point of sale (POS) terminals and devices, and self...

Q: Jones Automotives granted employee stock options on January 2, 2018,

Jones Automotives granted employee stock options on January 2, 2018, to acquire 100,000 shares of common stock. The exercise price was $25 per share and the vesting period is 4 years. The estimated fa...

Q: On January 1, 2018, Western Wear, Inc. granted

On January 1, 2018, Western Wear, Inc. granted 100,000 stock options to its employees. Of these options, 30% will vest on December 31, 2018, 30% will vest on December 31, 2019, and the remaining 40% w...

Q: On January 1, 2018, Western Wear, Inc. granted

On January 1, 2018, Western Wear, Inc. granted 100,000 stock options to its employees. Of these options, 30% will vest on December 31, 2018, 30% will vest on December 31, 2019, and the remaining 40% w...

Q: Max Ferguson Cosmetics compensates its key employees by offering stock options as

Max Ferguson Cosmetics compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year, Max Ferguson granted 10,000 options to acquire 10,000 sh...

Q: Davidson Company compensates its key employees by offering stock options as part

Davidson Company compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year, Davidson granted 80,000 options to acquire 80,000 shares of it...

Q: Max Ferguson Cosmetics compensates its key employees by offering stock options as

Max Ferguson Cosmetics compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year, Max Ferguson granted 10,000 options to acquire 10,000 sh...

Q: Gregory’s on Ormond, Inc. grants its president 2,000

Gregory’s on Ormond, Inc. grants its president 2,000 stock options on January 1, Year 1, that give him rights to purchase shares of the company for $40 per share on December 31, Year 2. At the time th...

Q: On January 1 of the current year, Brendan B Fashions granted

On January 1 of the current year, Brendan B Fashions granted 100,000 stock options to its division managers. The options are equity-classified awards. The plan permits the division managers to acquire...

Q: Teek Bank, NA started the year with 600,000 common

Teek Bank, NA started the year with 600,000 common shares outstanding and issued 48,000, 840,000, and 72,000 shares on February 1, May 1, and September 1, respectively. Teek acquired 12,000 treasury s...

Q: The Wall Street Journal reported that Juniper Networks Inc.—a maker

The Wall Street Journal reported that Juniper Networks Inc.—a maker of company network equipment—plans to offer its more than 1,000 employees the opportunity to reprise their stock options. Juniper’s...

Q: On October 15, 2023, the board of directors of Martinez

On October 15, 2023, the board of directors of Martinez Materials Corporation approved a stock option plan for key executives. On January 1, 2024, 20 million stock options were granted, exercisable fo...

Q: On December 31, 2023, Dow Steel Corporation had 600,

On December 31, 2023, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. ∙ Dow i...

Q: On December 31, 2023, Dow Steel Corporation had 600,

On December 31, 2023, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common st...

Q: Al capture Company reported a net income of $150,000

Al capture Company reported a net income of $150,000 in 2024. The weighted-average number of common shares outstanding for 2024 was 40,000. The average stock price for 2024 was $33. Assume an income t...

Q: On January 1, 2024, Daewoo Industries had outstanding 440,

On January 1, 2024, Daewoo Industries had outstanding 440,000 common shares ($l par) that originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock ($100 par), convertible...

Q: At January 1, 2024, M. E. Gaynor Corporation

At January 1, 2024, M. E. Gaynor Corporation had outstanding the following securities: The following additional information is available: ∙ On September 1, 2024, M. E. Gaynor sold 72...

Q: Witter House is a calendar-year firm with 300 million common

Witter House is a calendar-year firm with 300 million common shares outstanding throughout 2024 and 2025. As part of its executive compensation plan, at January 1, 2023, the company had issued 30 mill...

Q: Partner Brands is a calendar-year firm with operations in several

Partner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2024, the company issued 400,000 executive stock options permitti...

Q: LCI Cable Company grants 1 million performance stock options to key executives

LCI Cable Company grants 1 million performance stock options to key executives at January 1, 2024. The options entitle executives to receive 1 million of LCI $1 par common shares, subject to the achie...

Q: Fully vested incentive stock options exercisable at $50 per share to

Fully vested incentive stock options exercisable at $50 per share to obtain 24,000 shares of common stock were outstanding during a period when the average market price of the common stock was $60 and...

Q: On January 1, 2024, Hugh Morris Comedy Club (HMCC

On January 1, 2024, Hugh Morris Comedy Club (HMCC) granted 1 million stock options to key executives exercisable for 1 million shares of the company’s common stock at $20 per share. The stock options...

Q: You are assistant controller of Stamps & Company, a medium-

You are assistant controller of Stamps & Company, a medium-sized manufacturer of machine parts. On October 22, 2023, the board of directors approved a stock option plan for key executives. On January...

Q: On December 31, 2023, Barclay Inc. had 200 million

On December 31, 2023, Barclay 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, 2024, Barclay purcha...

Q: On December 31, 2023, Barclay Inc. had 200 million

On December 31, 2023, Barclay 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, 2024, Barclay purcha...

Q: On December 31, 2023, Barclay Inc. had 200 million

On December 31, 2023, Barclay 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, 2024, Barclay purcha...

Q: On January 1, 2024, Adams-Men eke Corporation granted

On January 1, 2024, Adams-Men eke 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 withi...

Q: On January 1, 2024, Farmer Fabrication issued stock options for

On January 1, 2024, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for manageria...

Q: On January 1, 2024, Farmer Fabrication issued stock options for

On January 1, 2024, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for manageria...

Q: Exhibit 7.14 includes a footnote excerpt from the annual report

Exhibit 7.14 includes a footnote excerpt from the annual report of The Coca-Cola Company for Year 4. The beverage company offers stock options to key employees under plans approved by stockholders....

Q: Carson Company would like to acquire Vinnet Inc., a publicly traded

Carson Company would like to acquire Vinnet Inc., a publicly traded firm in the same industry. Vinnet’s stock price is currently much lower than the prices of other firms in the industry, because it o...

Q: How can financial institutions with stock portfolios use stock options when they

How can financial institutions with stock portfolios use stock options when they expect stock prices to rise substantially but do not yet have sufficient funds to purchase more stock?

Q: The following information was taken from the statement of shareholders' equity of

The following information was taken from the statement of shareholders' equity of Zielow Siding as of December 31, 2021. The par value of the Zielow stock is $5, and as of the beginning of 2021 , the...

Q: The following information was taken from the statement of shareholders' equity of

The following information was taken from the statement of shareholders' equity of Kidd Sports as of December 31, 2021. The par value of Kidd stock is $1, and as of the beginning of 2021, the company h...

Q: Twin Lakes incorporated on April 1, 2021, and was authorized

Twin Lakes incorporated on April 1, 2021, and was authorized to issue 100,000 shares of $5 par value common stock and 10,000 shares of $8, no-par preferred stock. During the remainder of 2021, the com...

Q: The shareholders' equity section of Rodman Corporation as of December 31,

The shareholders' equity section of Rodman Corporation as of December 31, 2020, follows: During 2021, the company entered into the following transactions: 1. Purchased 1,000 shares of common stock for...

Q: The 2019 statement of shareholders' equity of Starbucks, the coffee shop

The 2019 statement of shareholders' equity of Starbucks, the coffee shop retailer, included the following information concerning common stock (in millions): INSTRUCTIONS: a. Compute the average prices...

Q: If I can increase my reported profit by $2 million,

If I can increase my reported profit by $2 million, the actual earnings per share will exceed analysts’ expectations, and stock prices will increase. The stock options that I am holding will become mo...

Q: The following disclosure note appeared in the 31 December 20X5 financial statements

The following disclosure note appeared in the 31 December 20X5 financial statements of Dridell Corporation, a manufacturer of electronic equipment: Dridell is exposed to liabilities and compliance cos...

Q: Cliff Dennis may become a rich man. He is the creative

Cliff Dennis may become a rich man. He is the creative force behind Amazing Drives, a new company. Amazing makes external drives that permit computer users to store large amounts of information on thu...

Q: Before 2002, accounting firms would provide multiple services to the same

Before 2002, accounting firms would provide multiple services to the same firm. Hired by the shareholders, they would audit the financial statements that were prepared by management while also pro- vi...

Q: This case presents, with additional information, the WorldCom saga included

This case presents, with additional information, the WorldCom saga included in this chapter. Questions specific to WorldCom activities are located at the end of the case. WorldCom Lights the Fire Worl...

Q: Pierre Garvey, the CEO of Revel Information Technology, sat back

Pierre Garvey, the CEO of Revel Information Technology, sat back in his chair and looked at his assistants. He frowned. “My son has been diagnosed with MLD,” he said. They all looked at him with shock...

Q: Employee stock options allow company executives to buy shares of their company

Employee stock options allow company executives to buy shares of their company at a specified price during a specified time period. They are given to executives as a form of noncash compensation. The...

Q: On March 19, 2003, the SEC filed accounting fraud charges

On March 19, 2003, the SEC filed accounting fraud charges in the Northern District of Alabama against HealthSouth Corporation and its CEO, Richard Scrushy. Scrushy was also charged with knowingly misc...

Q: Mergers and acquisitions (M&A) are strategies that help

Mergers and acquisitions (M&A) are strategies that help companies to grow in size rapidly. However, some incredibly questionable M&A decisions were reported in the mining industry in 2012 and 2013, in...

Q: Ted was the manager and Carl the partner on the audit of

Ted was the manager and Carl the partner on the audit of Smart Investments Limited, an investment company whose shares were traded on the NASDAQ exchange. They were discussing the issues to be debated...

Q: A portion of Note 2: Earnings per Share from Facebook,

A portion of Note 2: Earnings per Share from Facebook, lnc.'s 10-K is as follows: a. Explain why employee stock options and restricted stock units are adjustments to the denominator for diluted EPS. b...

Q: Merck & Co., Inc., reported net income attributable to Merck

Merck & Co., Inc., reported net income attributable to Merck & Co., Inc., of $2,394 million for the 2017 fiscal year. Its 2017 I 0-K report contained the following information regarding its stock opti...

Q: JetBlue Airways Corporation reports the following data in its 2016 10-

JetBlue Airways Corporation reports the following data in its 2016 10-K. The data relate to the corporation's computation of its earnings per share calculations. (Dollar and share data are in millions...

Q: The 2017 and 2018 statements of stockholders' equity for Alphabet Inc.

The 2017 and 2018 statements of stockholders' equity for Alphabet Inc. are presented below along with portions on Notes LO and 12 relating to stockholders' equity and equity-based compensation. Note 1...

Q: Employee stock options have a potentially dilutive effect on earnings per share

Employee stock options have a potentially dilutive effect on earnings per share (EPS) that is recognized in the diluted EPS computation. What can companies do to offset these dilutive effects and how...

Q: The board of directors of Meditronics Inc. has designated 100,

The board of directors of Meditronics Inc. has designated 100,000 stock options for distribution to employees and management of the company. Each of three executives is to receive 2000 more options th...

Q: Identify the most significant categories of employee benefits and services.

Identify the most significant categories of employee benefits and services. (1) Why are stock options a controversial employee benefit, particularly for top executives? (2) What are the risks of inves...

Q: On December 31, 20X7, Judy is a fully vested participant

On December 31, 20X7, Judy is a fully vested participant in a company-sponsored pension plan. According to the plan’s administrator, Judy has at that date the nonforfeitable right to...

Q: This problem is based on the 2020 annual report of Campbell Soup

This problem is based on the 2020 annual report of Campbell Soup Company. Required: Find in the Selected Financial Data (also known as the Five-Year Review), or calculate, the following data: a. Net s...