Intermediate accounting solution of c19.docx
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Intermediateaccountingsolutionofc19
Chapter19Share-BasedCompensationandEarningsPerShare
Exercises
Exercise19-1
Requirement1
$5fairvaluepershare
x16millionsharesgranted
=$80millionfairvalueofaward
Requirement2
December31,2011($inmillions)
Compensationexpense($80million÷2years)40
Paid-incapital–restrictedstock40
December31,2012
Compensationexpense($80million÷2years)40
Paid-incapital–restrictedstock40
Paid-incapital–restrictedstock80
Commonstock(16millionsharesx$1par)16
Paid-incapital–excessofpar(remainder)64
Exercise19-2
Requirement1
$2.50fairvaluepershare
x12millionsharesgranted
=$30millionfairvalueofaward
Requirement2
noentry
Requirement3
($inmillions)
Compensationexpense($30million÷3years)10
Paid-incapital–restrictedstock10
Requirement4
Compensationexpense($30million÷3years)10
Paid-incapital–restrictedstock10
Requirement5
Compensationexpense($30million÷3years)10
Paid-incapital–restrictedstock10
Requirement6
Paid-incapital–restrictedstock30
Commonstock(12millionsharesx$1par)12
Paid-incapital–excessofpar(remainder)18
Exercise19-3
Requirement1
$3,000,000111,540shares=$26.90
Requirement2
The$3,000,000totalcompensationisexpensedoverthethree-yearvestingperiod,$1,000,000eachyear.Duringthefirstyear,theexpenseistheappropriateportionof$1,000,000,dependingonthedatetheshareswereissued.Forinstance,iftheshareswereissuedthreemonthsbeforetheendoftheyear,theexpensewouldbe3/12x$1,000,000=$250,000.Theexpenseisthefull$1,000,000intheyearfollowingtheyearinwhichthestockwasissued.
Exercise19-4
Requirement1
$22.50fairvaluepershare
x4millionsharesgranted
=$90millionfairvalueofaward
Requirement2
noentry
Requirement3
($inmillions)
Compensationexpense($90million÷3years)30
Paid-incapital–restrictedstock30
Requirement4
$22.50fairvaluepershare
x4millionsharesgranted
x90%100%–10%forfeiturerate
=$81millionfairvalueofaward
Exercise19-5
Requirement1
$3fairvalueperoption
x4millionoptionsgranted
=$12milliontotalcompensation
Requirement2
noentry
Requirement3
($inmillions)
Compensationexpense($12million÷2years)6
Paid-incapital–stockoptions6
Requirement4
Compensationexpense($12million÷2years)6
Paid-incapital–stockoptions6
Exercise19-6
Requirement1
AtJanuary1,2011,theestimatedvalueoftheawardis:
$3estimatedfairvalueperoption
x25millionoptionsgranted
=$75milliontotalcompensation
Requirement2
($inmillions)
Compensationexpense($75million÷3years)25.0
Paid-incapital–stockoptions25.0
Requirement3
Adams-Menekeshouldadjustthecumulativeamountofcompensationexpenserecordedtodateintheyeartheestimatechanges.
2012
Compensationexpense([$75x94%x2/3]–$25)22
Paid-incapital–stockoptions22
2013
Compensationexpense([$75x94%x3/3]–$25–$22)23.5
Paid-incapital–stockoptions23.5
Notethatthisapproachiscontrarytotheusualwaycompaniesaccountforchangesinestimates.Forinstance,assumeacompanyacquiresa3-yeardepreciableassethavingnoestimatedresidualvalue.The$75milliondepreciablecostwouldbedepreciatedstraight-lineat$25millionoverthethree-yearusefullife.Iftheestimatedresidualvaluechangesafteroneyearto6%ofcost,thenewestimateddepreciablecostof$70.5wouldbereducedbythe$25milliondepreciationrecordedthefirstyear,andtheremaining$45.5millionwouldbedepreciatedequally,$22.75millionperyear,overtheremainingtwoyears.
Exercise19-7
Requirement1
AtJanuary1,2011,theestimatedvalueoftheawardis:
$1estimatedfairvalueperoption
x40millionoptionsgranted
=$40millionfairvalueofaward
Requirement2
($inmillions)
Compensationexpense($40million÷2years)20
Paid-incapital–stockoptions20
Requirement3
Compensationexpense($40million÷2years)20
Paid-incapital–stockoptions20
Requirement4
Cash($8exercisepricex30millionshares)240
Paid-incapital-stockoptions
(3/4accountbalanceof$40million)30
Commonstock(30millionsharesat$1parpershare)30
Paid-incapital–excessofpar(remainder)240
Note:
Themarketpriceatexerciseisirrelevant.
Requirement5
Paid-incapital–stockoptions($40-30million)10
Paid-incapital–expirationofstockoptions10
Exercise19-8
Requirement1
AtJanuary1,2011,thetotalcompensationismeasuredas:
$3fairvalueperoption
x12millionoptionsgranted
=$36millionfairvalueofaward
Requirement2
December31,2011,2012,2013
($inmillions)
Compensationexpense($36million÷3years)12
Paid-incapital–stockoptions12
Requirement3
Cash($11exercisepricex12millionshares)132
Paid-incapital-stockoptions($12millionx3years)36
Commonstock(12millionsharesat$1parpershare)12
Paid-incapital–excessofpar(tobalance)156
Note:
Themarketpriceatexerciseisirrelevant.
Exercise19-9
Cash($12x50,000x85%)510,000
Compensationexpense($12x50,000x15%)90,000
Commonstock($1x50,000)50,000
Paid-incapital-inexcessofpar($11x50,000)550,000
Exercise19-10
(amountsinthousands,exceptpershareamount)
netEarnings
incomePerShare
$655$655
————————————————————————=——=$.64
900(1.05)+60(8/12)(1.05)+72(7/12)1,029
sharesnewnew
atJan.1sharesshares
___stockdividend___
adjustment
Exercise19-11
1.EPSin2011
(amountsinthousands,exceptpershareamount)
netEarnings
incomePerShare
$400$400
——————————————————————————––––=$2.00
202-6(10/12)+6(2/12)+24(1/12)200
sharestreasurytreasurysharesnew
atJan.1sharessoldshares
2.EPSin2012
(amountsinthousands,exceptpershareamount)
netEarnings
incomePerShare
$400$400
——————————————————————————––––=$.88
(202-6+6+24)x(2.00)452
sharesstockdividend
atJan.1adjustment
3.2011EPSinthe2012comparativefinancialstatements
(amountsinthousands,exceptpershareamount)
netEarnings
incomePerShare
$400$400
——————————————————————————––––=$1.00
200x(2.00)400
weighted-averagesharesstockdividend
aspreviouslycalculatedadjustment
Exercise19-12
(amountsinthousands,exceptpershareamount)
netpreferredEarnings
incomedividendsPerShare
$2,000–$50$1,950
—————————————————=————=$1.95
800(1.25)1,000
sharesstockdividend
atJan.1adjustment
Exercise19-13
(amountsinthousands,exceptpershareamount)
netpreferredNetLoss
lossdividendsPerShare
–$114–$761–$190
——————————————————————=——=($.50)
373+12(7/12)380
sharesnew
atJan.1shares
19.5%x$800*=$76
*8,000sharesx$100par=$800,000
Exercise19-14
(amountsinmillions,exceptpershareamount)
netpreferredEarnings
incomedividendsPerShare
$150–$271$123
——————————————————————=———=$.65
200(1.05)–24(10/12)(1.05)+4(3/12)190
sharestreasurynew
atJan.1sharesshares
___stockdividend___
adjustment
19%x$300=$27
Exercise19-15
(amountsinmillions,exceptpershareamount)
BasicEPS
netpreferred
incomedividends
$150–$27$123
——————————————————————————=——=$.65
200(1.05)–24(10/12)(1.05)+4(3/12)190
sharestreasurynew
atJan.1sharesshares
___stockdividend___
adjustment
DilutedEPS
netpreferred
incomedividends
$150–$27$123
——————————————————————————=——=$.63
200(1.05)–24(10/12)(1.05)+4(3/12)+(30–24*)196
sharestreasurynewassumedexercise
atJan.1sharessharesofoptions
___stockdividend___
adjustment
*Purchaseoftreasurystock
30millionshares
x$56(exerciseprice)
$1,680million
÷$70(averagemarketprice)
24millionshares
Exercise19-16
(amountsinmillions,exceptpershareamount)
BasicEPS
netpreferred
incomedividends
$150–$27$123
——————————————————————————=——=$.62
200(1.05)–24(10/12)(1.05)+4(3/12)+30(4/12)200
sharestreasurynewactualexercise
atJan.1sharessharesofoptions
___stockdividend___
adjustment
DilutedEPS
netpreferred
incomedividends
$150–$27$123
————————————————————————————=——=$.60
200(1.05)–24(10/12)(1.05)+4(3/12)+(30–24*)(8/12)+30(4/12)204
sharestreasurynewassumedexerciseactualexercise
atJan.1sharessharesofoptionsofoptions
___stockdividend___
adjustment
*Purchaseoftreasurystock
30millionshares
x$56(exerciseprice)
$1,680million
÷$70(averagemarketprice)
24millionshares
Exercise19-17
(amountsinmillions,exceptpershareamount)
BasicEPS
netpreferred
incomedividends
$150–$27*$123
————————————————————————————=—=$.65
200(1.05)–24(10/12)(1.05)+4(3/12)190
sharestreasurynew
atJan.1sharesshares
___stockdividend___
adjustment
*9%x$100x3millionshares=$27millionpreferreddividends
DilutedEPS
netpreferredafter-t