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Chapter 16: Q26Q (page 874)
How is antidilution determined when multiple securities are involved?
Multiple securities should be ranked with respect to maximum dilution. Earning per share reduces till the one of the securities increases or maintain the earnings per share.
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(Stock-Based Compensation) Assume that Amazon.com has a stock-option plan for top management. Each
stock option represents the right to purchase a share of Amazon \(1 par value common stock in the future at a price equal to the
fair value of the stock at the date of the grant. Amazon has 5,000 stock options outstanding, which were granted at the beginning
of 2017. The following data relate to the option grant.
Exercise price for options \)40
Market price at grant date (January 1, 2017) \(40
Fair value of options at grant date (January 1, 2017) \)6
Service period 5 years
Instructions
(a) Prepare the journal entry(ies) for the first year of the stock-option plan.
(b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted
stock were granted at the beginning of 2017.
(c) Now assume that the market price of Amazon stock on the grant date was $45 per share. Repeat the requirements for
(a) and (b).
(d) Amazon would like to implement an employee stock-purchase plan for rank-and-file employees, but it would like to
avoid recording expense related to this plan. Which of the following provisions must be in place for the plan to avoid
recording compensation expense?
(1) Substantially all employees may participate.
(2) The discount from market is small (less than 5%).
(3) The plan offers no substantive option feature.
(4) There is no preferred stock outstanding
IFRS16-12 Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2017.
Instructions
(a) Compute the carrying value of the bond payable on January 1, 2017.
(b) Prepare the journal entry to record the conversion on January 1, 2017.
(c) Assume that the bonds were repurchased on January 1, 2017, for \(1,940,000 cash instead of being converted. The net present value of the liability component of the convertible bonds on January 1, 2017, is \)1,900,000. Prepare the journal entry to record the repurchase on January 1, 2017.
Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2017. On May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued for cash. (b) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued in a stock dividend.
(Issuance, Exercise, and Termination of Stock Options) On January 1, 2016, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols’ \(5 par value common stock at a price of \)20 per share. The options were exercisable within a 2-year period beginning January 1, 2018, if the grantee is still employed by the company at the time of the exercise. On the grant date, Nichols’ stock was trading at \(25 per share, and a fairvalue option-pricing model determines total compensation to be \)400,000.On May 1, 2018, 8,000 options were exercised when the market price of Nichols’ stock was $30 per share. The remaining options lapsed in 2020 because executives decided not to exercise their options.
Instructions
Prepare the necessary journal entries related to the stock option plan for the years 2016 through 2020.
On July 1, 2017, Roberts Corporation issued \(3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for \)30 one share of \(1 par value common stock at any time during the next 10 years. The bonds were sold for \)3,000,000. The value of the warrants at the time of issuance was $100,000. Prepare the journal entry to record this transaction.
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