Question 1

What is restricted stock? Describe how compensation expense is determined and recorded for a restricted stock plan.

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Question 2

Why are earnings per share figures for prior years adjusted for stock splits and stock dividends when data from prior years is presented in comparative financial statements?

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Question 3

Reacting to opposition to the FASB's "Share-Based Payment" Exposure Draft, Senator Carl Levin stated, "Stock options are the 800-pound gorilla that has yet to be caged by corporate reform." In reference to a bill that would thwart the FASB's position, Senator John McCain said, "This legislation blocking stock option expensing not only undermines FASB's independence, but undermines the effort to restore confidence in our financial markets as well." Discuss what these two senators meant by their statements.

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Question 4

How is a complex capital structure different from a simple capital structure?

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Question 5

During 2009, Quattro entered into the following transactions relating to shareholders' equity. The corporation was authorized to issue 20 million common shares, $1 par per share.
Required:
Compute basic and diluted EPS for 2009.
 Net income for 2009 was $ \$ 110 $ million.
Jan. 2:$\quad$ Issued 10 million common shares for cash.
Jan. 3: $\quad$Entered an agreement with the company president to issue up to 2 million additional 
$\quad$$\quad$$\quad$shares of common stock in 2009 based on the earnings of Quattro in 2009. If net
$\quad$$\quad$$\quad$ income exceeds $ \$ 100 $ million, the president will receive 1 million shares; 2 million 
$\quad$$\quad$$\quad$shares if net income exceeds $ \$ 120 $ million.

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Question 6

What is meant by dilution of earnings per share?

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Question 7

A disclosure note from E Corp.'s 2009 annual report is shown below:
Employee Stock Purchase Plan. We have an employee stock purchase plan for all eligible employees. Compensation expense for the employee stock purchase plan is recognized in accordance with SFAS No.123(R). Shares of our common stock may be purchased by employees at three-month intervals at 85% of the fair market value on the last day of each three-month period. Employees may purchase shares having a value not exceeding 10% of their gross compensation during an offering period. Employees purchased the following shares:
At June30, 2009, 150million shares were reserved for future issuance.
Required:
Describe the way "Compensation expense for the employee stock purchase plan is recognized in accordance with SFAS No.123(R)" by E. Include in your explanation the journal entry that summarizes employee share purchases during 2009.
 $\begin{array}{lrrrr}
\text { (Shares in millions) } & \mathbf{2 0 0 9} & \mathbf{2 0 0 8} & \mathbf{2 0 0 7} \
\text { Shares purchased } & \mathbf{1 5} & 14 & 12 \
\text { Average price paid per share } & \mathbf{\$ 2 5 . 2 5} & \$ 23.92 & \$ 23.83
\end{array}$

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Question 8

What is the advantage of a stock appreciation right over stock options?

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Question 9

Why are preferred dividends deducted from net income when calculating EPS?

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Question 10

At the end of 2009, what is the maximum number of shares that could possibly be issued if all stock options and awards are exercised? Explain why V Co. used only 3.3 million in its computation for 2009.

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Question 11

Compare the concepts of basic and diluted earnings per share with respect to their calculation.

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Question 12

What is the "if converted method"?

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Question 13

The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?

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Question 14

What is the treasury stock method of accounting for stock options, warrants, and rights?

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Question 15

M, Inc. supplies consumer products used in the U.S. and other markets. In its 2009 Annual Report to Shareholders, M, Inc. disclosed the following footnote about its EPS:
"The consolidated financial statements are presented in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options and upon the assumed conversion of the Company's Convertible Notes in fiscal 2009 as if conversion to common shares had occurred at the beginning of the fiscal year. Earnings have also been adjusted for interest expense on the Convertible Notes in fiscal 2009."
Explain why M mentioned the adjustment in the last sentence of the footnote.

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Question 16

What is an anti-dilutive security?

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Question 17

When the income statement includes separately reported items such as discontinued operations or extraordinary items, which amounts require per share presentation?

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Question 18

Stock option plans give 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 heated controversies in standard-setting history has been the debate over the amount of compensation to be recognized as expense for stock options. At issue is how the value of stock options is measured, which for most options determines whether any expense at all is recognized. The opposition included corporate executives, auditors, members of Congress, and the SEC.
Required:
Describe the primary objections of critics of the FASB's eventually successful attempt to require expensing of the fair value of the options.

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Question 19

How are outstanding stock options and awards taken into account in computing diluted EPS for V Co.?

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Quiz 19: Share-Based Compensation and Earnings Per Share