Question 1

When liability-classified stock options expire,additional paid in capital is increased.

Accepted Answer

The answer of When liability-classified stock options expire,additional paid in...

Question 2

Refer to Walker Corporation.Assuming that all compensation expense has been recorded,record the journal entry to reflect the expiration of 3,000 options that were never exercised.

Accepted Answer

The answer of Refer to Walker Corporation.Assuming that all compensation...

Question 3

What is the total compensation cost for this plan?

Accepted Answer

The total compensation cost is $240,000, as it is the sum of the individual components of the compensation plan.

Question 4

What is the journal entry to record the exercise of 85% of the options during Year 4 when the market price of the stock was $10.

Accepted Answer

The answer of What is the journal entry to record...

Question 5

List the conditions in which employee compensation is classified as a liability under liability classified awards.

Accepted Answer

The answer of List the conditions in which employee compensation...

Question 6

Refer to Walker Corporation.On April 1,Year 7,when the market price of Walker's stock was $20 per share,15,000 of the options were exercised.Make the appropriate journal entry to record this transaction.

Accepted Answer

The answer of Refer to Walker Corporation.On April 1,Year 7,when...

Question 7

Refer to Walker Corporation.Make the journal entries to record the granting of the options and the compensation for Year 1.

Accepted Answer

The answer of Refer to Walker Corporation.Make the journal entries...

Question 8

On January 1,Year 1,Gallagher Corporation issued stock options for 300,000 shares to a division manager.The options have an estimated fair value of $6 each.These options are not exercisable unless division revenue increases by 8% in four years.Gallagher estimates that it is probable that the goal will be achieved.What is pretax compensation expense for year 1?

Accepted Answer

The pretax compensation expense for year 1 is calculated using the following formula: 
Pretax compensation expense = (Total number of shares x Fair value per share) x Probability of achieving the condition in year 1
= (300,000 x $6) x 0 = $0
Since the condition is not expected to be achieved in year 1, there is no compensation expense recognized in year 1. The compensation expense will be recognized only if and when the condition is met. Therefore, the correct answer is B, which represents $0 pretax compensation expense for year 1.

Question 9

On January 1,Year 1,Davenport Corporation granted an employee an option to purchase 10,000 of Davenport's $10 par common stock at $30 per share.The options became exercisable on December 31,Year 3,after the employee completed three years of service.The option was exercised on February 1,Year 4.The market prices of Davenport's stock were as follows: January 1,Year 1,$40; December 31,Year 3,$60; and February 1,Year 4,$55.An options pricing model estimated the value of the options at $12 each on the grant date.For Year 1,Davenportt should recognize compensation expense of ________.

Accepted Answer

The compensation expense is calculated based on the fair value of the options at the grant date, which is $12 per option. Since the options vest over three years, the total compensation expense is $12 * 10,000 = $120,000, recognized evenly over three years. For Year 1, the expense is $120,000 / 3 = $40,000.

Question 10

On January 1,Year 1,Freeman Corporation granted stock options to key employees which allowed these employees to purchase 90,000 shares of the corporation's common stock at $30 per share.These options are intended to compensate employees for the next three years.The options may be exercised within a four-year period beginning January 1,Year 4,by the grantees still employed by the company.No options were terminated during Year 1,but Freeman does have an experience of 5% forfeitures over the life of the stock options.The market price of the stock was $35 per share at the date of grant.Freeman used an appropriate pricing model and estimated the value oh an option at $15.What amount should be charged to compensation expense for the year ended December 31,Year 1?

Accepted Answer

The answer of On January 1,Year 1,Freeman Corporation granted stock...

Question 11

When a company grants a liability-classified award,it does not make an entry at the grant date.

Accepted Answer

When a company grants a liability-classified award, it does not make an entry at the grant date as the liability is not yet earned by the employee. The entry is made only when the liability is earned, which is usually at the vesting date of the award.

Question 12

Which of the following statements about liability-classified awards is true?

Accepted Answer

The answer of Which of the following statements about liability-classified...

Question 13

An employee who is awarded stock appreciation rights must purchase the related shares.

Accepted Answer

An employee who is awarded stock appreciation rights does not need to purchase the related shares. Instead, they are granted the right to receive the appreciation in value of the shares over a specified period of time. This can be in the form of cash or additional shares, depending on the company's plan.

Question 14

What is the entry to record the expiration of 15% of the options on December 31,Year 5?

Accepted Answer

The answer of What is the entry to record the...

Question 15

What amount should Fields recognize as compensation expense for Year 1?

Accepted Answer

Fields should recognize $300,000 as compensation expense for Year 1 because the services were performed in Year 1 and the payment is not contingent on future performance.

Question 16

Which of the following is not a situation in which employee compensation is classified as a liability?

Accepted Answer

Employee compensation classified as liability would typically include situations where the company owes the employee a payment in cash or other assets. Options granted for the acquisition of equity securities (stocks) would not fall under this category as they do not involve a liability owed by the company.

Question 17

What is the journal entry to record compensation expense for Year 1?

Accepted Answer

The answer of What is the journal entry to record...

Question 18

The carrying value value of liability-classified awards are not adjusted for changes in fair value.

Accepted Answer

Liability-classified awards are adjusted for changes in fair value at each reporting date until they are settled.

Question 19

An employee will not redeem a liability-classified award when the stock is out of the money.

Accepted Answer

An out-of-the-money stock award means that the market price of the stock is lower than the exercise price of the award. In this situation, it is not financially beneficial for the employee to exercise the award, and therefore, they will not redeem it. This is true for a liability-classified award as well.

Question 20

If unexpected turnover in Year 2 caused Fields to estimate that 15% of the options would be forfeited,what amount of compensation expense should Fields recognize in Year 2?

Accepted Answer

15% of the options would be forfeited, so the compensation expense should be 15% of the $2 million grant, which is $300,000.

Quiz 20: Accounting for Employee Compensation and Benefits

When liability-classified stock options expire,additional paid in capital is increased.

Refer to Walker Corporation.Assuming that all compensation expense has been recorded,record the journal entry to reflect the expiration of 3,000 options that were never exercised.

What is the total compensation cost for this plan?

What is the journal entry to record the exercise of 85% of the options during Year 4 when the market price of the stock was $10.

List the conditions in which employee compensation is classified as a liability under liability classified awards.

Refer to Walker Corporation.On April 1,Year 7,when the market price of Walker's stock was $20 per share,15,000 of the options were exercised.Make the appropriate journal entry to record this transaction.

Refer to Walker Corporation.Make the journal entries to record the granting of the options and the compensation for Year 1.

When a company grants a liability-classified award,it does not make an entry at the grant date.

Which of the following statements about liability-classified awards is true?

An employee who is awarded stock appreciation rights must purchase the related shares.

What is the entry to record the expiration of 15% of the options on December 31,Year 5?

What amount should Fields recognize as compensation expense for Year 1?

Which of the following is not a situation in which employee compensation is classified as a liability?

What is the journal entry to record compensation expense for Year 1?

The carrying value value of liability-classified awards are not adjusted for changes in fair value.

An employee will not redeem a liability-classified award when the stock is out of the money.

If unexpected turnover in Year 2 caused Fields to estimate that 15% of the options would be forfeited,what amount of compensation expense should Fields recognize in Year 2?