Deck 16: Dilutive Securities and Earnings Per Share

Question 1

If a share dividend occurs after year-end, but before the financial statements, are authorized for issuance, a company must restate the weighted-average number of shares outstanding for the year.

Answer 1

True

Question 2

Preference dividends are subtracted from net income but not income from continuing operations in computing earnings per share.

Answer 2

False

Question 3

When a company has a complex capital structure, it must report both basic and diluted earnings per share.

Answer 3

True

Question 4

Under the fair value method, companies compute total compensation expense based on the fair value of options on the date of exercise.

Question 5

The service period in share option plans is the time between the grant date and the vesting date.

Question 6

When an issuer offers some form of additional consideration (a sweetener) to encourage of its convertible debt, it reports the sweetener as a current period expense.

Question 7

Non-detachable warrants, unlike detachable warrants, are not considered a compound instrument for accounting purposes.

Question 8

The issuer of convertible preference shares uses the fair value method to record the conversion of the shares.

Question 9

A company should report per share amounts for income from continuing operations, but not for discontinued operations.

Question 10

When share dividends or share splits occur, companies must restate the shares outstand-ing after the share dividend or split, in order to compute the weighted-average number of shares.

Question 11

In computing diluted earnings per share, share options are considered dilutive when their option price is greater than the market price.

Question 12

If preference shares are cumulative and no dividends are declared, the company subtracts the current year preference dividend in computing earnings per share.

Question 13

The number of contingent shares to be included in diluted earnings per share is based on the number of shares that would be issuable as if the end of the period were the end of the contingency period.

Question 14

Companies recognize a gain or loss on the conversion of convertible debt before maturity.

Question 15

If an employee fails to exercise a share option before its expiration date, the company should decrease compensation expense.

Question 16

If a service condition exists, the company is not permitted to adjust the estimate of compensation expense.

Question 17

A company should allocate the proceeds from the sale of debt with detachable share warrants between the two securities based on their a fair values.

Question 18

The intrinsic value of a share option is the difference between the market price of the shares and the exercise price of the options at the grant date.

Question 19

Companies recognize a gain or loss when shareholders exercise convertible preference shares.

Question 20

IFRS requires that convertible debt be separated into its liability and equity components for accounting purposes.

Question 21

When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n)

A)equity item.
B)expense.
C)loss.
D)None of these a are correct.

Question 22

The conversion of bonds is most commonly recorded by the

A)incremental method.
B)proportional method.
C)fair value method.
D)book value method.

Question 23

The conversion of preference shares may be recorded by the

A)incremental method.
B)book value method.
C)market value method.
D)par value method.

Question 24

Convertible preference shares

A)Are compound instruments with both a liability and an equity component.
B)Include an option for the holder to convert preference shares into a fixed number of ordinary shares.
C)Use the "with-and-without" method to value the compound instrument.
D)All of these answer choices are correct.

Question 25

Proceeds from an issue of debt securities having share warrants should not be allocated between debt and equity features when

A)the fair value of the warrants is not readily available.
B)exercise of the warrants within the next few fiscal periods seems remote.
C)the warrants issued with the debt are non-detachable.
D)Proceeds should be allocated between debt and equity for all of these.

Question 26

The major difference between convertible debt and share warrants is that upon exercise of the warrants

A)the shares are held by the company for a defined period of time before they are issued to the warrant holder.
B)the holder has to pay a certain amount of cash to obtain the shares.
C)the shares involved are restricted and can only be sold by the recipient after a set period of time.
D)no share premium can be a part of the transaction.

Question 27

According to IFRS, once the total compensation is measured at the date of grant

A)it can be changed in future periods related to a change in market conditions.
B)it can be changed to reflect the rise or fall in the market price of the company's ordinary shares.
C)a company is permitted to adjust the number of share options expected to the actual number of instruments vested.
D)All of these answer choices are correct.

Question 28

Restricted shares

A)better align the employee incentives with the companies' incentives.
B)result in less dilution to existing shareholders.
C)never become completely worthless.
D)All of these choices are correct.

Question 29

The distribution of share rights to existing ordinary shareholders will increase share premium at the

Question 30

Convertible bonds

A)have priority over other indebtedness.
B)are usually secured by a first or second mortgage.
C)pay interest only in the event earnings are sufficient to cover the interest.
D)may be exchanged for equity securities.

Question 31

Convertible bonds

A)Are separated into the bond component and the expense component.
B)Allow a company to issue debt financing at cheaper rates.
C)Are separated into their components based on relative fair values.
D)All of these answer choices are correct.

Question 32

A corporation issues bonds with detachable warrants.The amount to be recorded as share premium is preferably

A)zero.
B)calculated as the excess of the proceeds over the face value of the bonds.
C)equal to the market value of the warrants.
D)calculated as the excess of the proceeds over the fair value of the bonds.

Question 33

Which of the following is not a characteristic of a noncompensatory stock option plan?

A)Substantially all full-time employees may participate on an equitable basis.
B)The plan offers no substantive option feature.
C)Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company.
D)Discount from the market price of the stock no greater than would be reasonable in an offer of stock to stockholders or others.

Question 34

Mae Jong Corp issues $1,000,000 of 10% bonds payable which may be converted into 10,000 shares of $2 par value ordinary shares.The market rate of interest on similar bonds is 12%.Interest is payable annually on December 31, and the bonds were issued for total proceeds of $1,000,000.In accounting for these bonds, Mae Jong Corp.will

A)First assign a value to the equity component, then determine the liability component.
B)Assign no value to the equity component since the conversion privilege is not separable from the bond.
C)First assign a value to the liability component based on the face amount of the bond.
D)Use the "with-and-without" method to value the compound instrument.

Question 35

According to IFRS, a company makes only a memorandum entry when

A)companies give warrants to executives and employees as a form of compensation.
B)companies include warrants to make a security more attractive.
C)companies issue rights to existing shareholders.
D)All of these answer choices are correct.

Question 36

When the cash proceeds from bonds issued with detachable share warrants exceed the fair value of the bonds without the warrants, the excess should be credited to

A)Share Premium-Ordinary.
B)Retained Earnings.
C)A share liability account.
D)Share Premium-Share Warrants.

Question 37

Corporations issue convertible debt for two main reasons.One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted.The other is

A)the ease with which convertible debt is sold even if the company has a poor credit rating.
B)the fact that equity capital has issue costs that convertible debt does not.
C)that many corporations can obtain financing at lower rates.
D)that convertible bonds will always sell at a premium.

Question 38

The conversion of preference shares into ordinary shares requires that any excess of the par value of the ordinary shares issued over the carrying amount of the preference shares being converted should be

A)reflected currently in income.
B)reflected currently in other comprehensive income.
C)treated as a prior period adjustment.
D)treated as a direct reduction of retained earnings.

Question 39

When convertible debt is not converted at maturity

A)a gain or loss is recorded for the difference between the book value of the debt and the present value of the cash flows.
B)the amount originally allocated to equity is recorded as a gain on retirement.
C)the amount allocated to the equity component at the issuance date is recorded as a loss on retirement.
D)the carrying value of the bond equals its face value and it is removed from the books.

Question 40

The date on which to measure the compensation element in a share option granted to a corporate employee ordinarily is the date on which the employee

A)is granted the option.
B)has performed all conditions precedent to exercising the option.
C)may first exercise the option.
D)exercises the option.

Question 41

Mae Jong Corp.issued 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000).Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.On December 31, 2012, Mae Jong wishes to reduce its annual interest cost.The company agrees to pay the holder of its convertible bonds an additional €40,000 if they will convert.Assuming conversion occurs, Mae Jong's journal entry to record the conversion will include all of the following except

A)Debit Bonds Payable €1,000,000.
B)Debit Share Premium-Ordinary €40,000.
C)Credit Cash €40,000.
D)Credit Share Capital-Ordinary €250,000.

Question 42

Mae Jong Corp.issues 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000).Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.When Mae Jong records the issuance of these bonds, how much will it credit to Share Premium-Conversion Equity? The following present value factors are available:

A)€ -0-
B)€97,187
C)€83,663
D)€250,000

Question 43

For share appreciation rights that are a liability award, the measurement date for computing compensation is the date

A)the rights mature.
B)the share's price reaches a predetermined amount.
C)of grant.
D)of exercise.

Question 44

Fogel Co.has $2,500,000 of 8% convertible bonds outstanding.Each $1,000 bond is convertible into 30 shares of $30 par value ordinary shares.The bonds pay interest on January 31 and July 31.On July 31, 2016, the holders of $800,000 bonds exercised the conversion privilege.On that date the market price of the bonds was 105 and the market price of the ordinary shares was $36.The total unamortized bond premium at the date of conversion was $175,000.Fogel should record, as a result of this conversion, a

A)credit of $136,000 to Share Premium-Ordinary.
B)credit of $120,000 to Share Premium-Ordinary.
C)credit of $56,000 to on Bonds Payable.
D)loss of $8,000.

Question 45

Mae Jong Corp.issued 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000).Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.Assume that at the issuance date, €97,187 was credited to Share Premium-Conversion Equity and that the bonds were not converted until maturity.What amount will Mae Jong credit to Share Premium-Ordinary at the maturity date?

A)€750,000
B)€652,813
C)€847,187
D)€347,187

Question 46

Compensation expense resulting from a compensatory share option plan is generally

A)recognized in the period of exercise.
B)recognized in the period of the grant.
C)allocated to the periods benefited by the employee's required service.
D)allocated over the periods of the employee's service life to retirement.

Question 47

A company estimates the fair value of SARs, using an option-pricing model, for

A)share-based equity awards.
B)share-based liability awards.
C)both equity awards and liability awards.
D)neither equity awards or liability awards.

Question 48

The date on which total compensation expense is computed in a share option plan is the date

A)of grant.
B)of exercise.
C)that the market price coincides with the option price.
D)that the market price exceeds the option price.

Question 49

On December 1, 2016, Lester Company issued at 103, two hundred of its 9%, $1,000 bonds.Attached to each bond was one detachable share warrant entitling the holder to purchase 10 shares of Lester's ordinary shares.On December 1, 2016, the fair value of the bonds, without the share warrants, was 95, and the fair value of each share warrant was $50.The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be

A)$195,700.
B)$190,000.
C)$200,000.
D)$206,000.

Question 50

An executive pays no taxes at time of exercise in a(an)

A)share appreciation rights plan.
B)incentive share option plan.
C)nonqualified share option plan.
D)Taxes would be paid in all of these.

Question 51

Mae Jong Corp.issued 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000).Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.Assume that at the issuance date, €97,187 was credited to Share Premium-Conversion Equity.The bonds were not converted at maturity and Mae Jong pays off the convertible debt holders.What amount will Mae Jong record as a gain or a loss on this transaction?

A)€ -0-
B)€97,187
C)€24,297
D)€250,000

Question 52

In accounting for share-appreciation rights plans, compensation expense is generally

A)not recognized because no excess of market price over the option price exists at the date of grant.
B)recognized in the period of the grant.
C)allocated over the service period of the employees.
D)recognized in the period of exercise.

Question 53

Employee share purchase plans (ESPP)

A)Permit all employees to purchase shares at a discounted price.
B)Are generally considered noncompensatory and result in no compensation expense being recorded.
C)Distribute restricted shares to employees for a short period of time.
D)All of these answer choices are correct regarding ESPP.

Question 54

Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 ordinary shares (par value $40).At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the shares are quoted on the market at $60 per share.If the bonds are converted into ordinary shares, what is the amount of share premium to be recorded on the conversion of the bonds?

A)$25,000
B)$22,000
C)$32,000
D)$40,000

Question 55

On July 1, 2016, an interest payment date, $60,000 of Parks Co.bonds were converted into 1,200 ordinary shares of Parks Co.each having a par value of $45 and a fair value of $54.There is $2,400 unamortized discount on the bonds.Parks would record

A)no change in share premium.
B)a $3,600 increase in share premium.
C)a $7,200 increase in share premium.
D)a $4,800 increase in share premium.

Question 56

Pelton, Inc.issued £2,000,000 par value, 7% convertible bonds at 99 for cash.The net present value of the debt without the conversion feature is £1,9000,000.What amount will Peloton assign to the equity feature of these bonds?

A)£100,000
B)£ - 0 -
C)£99,000
D)£80,000

Question 57

Mae Jong Corp.issues 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000).Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.Compute the liability component of Mae Jong's convertible debt.The following present value factors are available:

A)€1,000,000
B)€750,000
C)€902,813
D)€916,337

Question 58

On January 2, 2014, LexxMark Co.issues 2,000 convertible preference shares that have a par value of €20 per share.The shares were issued at a price of €400 per share.On December 31, 2016, LexxMark Co.repurchases the convertible preference shares for €820,000.On this date, LexxMark will record

A)A loss of €20,000.
B)A credit to Share Premium-Conversion Equity €40,000.
C)A debit to Retained Earnings €20,000.
D)A credit to Share Capital-Preference €40,000.

Question 59

In 2015, Eklund, Inc., issued for $103 per share, 60,000 shares of $100 par value convertible preference shares.One share of preference shares can be converted into three shares of Eklund's $25 par value ordinary shares at the option of the preference shareholder.In August 2016, all of the preference shares were converted.The fair value of the ordinary shares at the date of the conversion was $30 per share.What total amount should be credited to share premium-ordinary as a result of the conversion of the preference shares into ordinary shares?

A)$1,020,000.
B)$780,000.
C)$1,500,000.
D)$1,680,000.

Question 60

Morgan Corporation had two issues of securities outstanding: ordinary shares and an 8% convertible bond issue in the face amount of $16,000,000.Interest payment dates of the bond issue are June 30th and December 31st.The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value ordinary shares in exchange for each $1,000 bond.On June 30, 2015, the holders of $2,400,000 face value bonds exercised the conversion privilege.The market price of the bonds on that date was $1,100 per bond and the market price of the shares was $35.The total unamortized bond discount at the date of conversion was $1,000,000.What amount should Morgan credit to the account "Share Premium-Ordinary," as a result of this conversion?

A)$330,000.
B)$160,000.
C)$1,440,000.
D)$720,000.

Question 61

On July 1, 2016, Ellison Company granted Sam Wine, an employee, an option to buy 400 shares of Ellison Co.shares for $30 per share, the option exercisable for 5 years from date of grant.Using a fair value option pricing model, total compensation expense is determined to be $1,800.Wine exercised his option on October 1, 2016 and sold his 400 shares on December 1, 2016.Quoted market prices of Ellison Co.shares in 2016 were: The service period is for three years beginning January 1, 2016.As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense on its books in the amount of

A)$1,800.
B)$600.
C)$450.
D)$0.

Question 62

On December 31, 2015, Gonzalez Company granted some of its executives options to purchase 100,000 shares of the company's $10 par ordinary shares at an option price of $50 per share.The Black-Scholes option pricing model determines total compensation expense to be $750,000.The options become exercisable on January 1, 2016, and represent compensation for executives' services over a three-year period beginning January 1, 2016.At December 31, 2016 none of the executives had exercised their options.What is the impact on Gonzalez's net income for the year ended December 31, 2016 as a result of this transaction under the fair value method?

A)$250,000 increase.
B)$750,000 decrease.
C)$250,000 decrease.
D)$0.

Question 63

On April 7, 2016, Kegin Corporation sold a $2,000,000, twenty-year, 8 percent bond issue for $2,120,000.Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's ordinary shares for $30.The shares have a par value of $25 per share.Immediately after the sale of the bonds, the corporation's securities had the following fair values:

Question 64

On December 31, 2015, Kessler Company granted some of its executives options to purchase 50,000 shares of the company's $10 par ordinary shares at an option price of $50 per share.The options become exercisable on January 1, 2016, and represent compensation for executives' services over a three-year period beginning January 1, 2016.The Black-Scholes option pricing model determines total compensation expense to be $300,000.At December 31, 2016, none of the executives had exercised their options.What is the impact on Kessler's net income for the year ended December 31, 2016 as a result of this transaction under the fair value method?

A)$100,000 increase
B)$0
C)$100,000 decrease
D)$300,000 decrease

Question 65

Use the following information for questions
On May 1, 2016, Marly Co.issued $500,000 of 7% bonds at 103, which are due on April 30, 2026.Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's ordinary shares $15 par value, were attached to each $1,000 bond.The bonds without the warrants would sell at 96.On May 1, 2016, the fair value of Marly's shares was $35 per share and of the warrants was $2.
On May 1, 2016, Marly should record bonds payable at

A)$515,000.
B)$500,000.
C)$480,000.
D)$494,400.

Question 66

In order to retain certain key executives, Smiley Corporation granted them incentive share options on December 31, 2014.80,000 options were granted at an option price of $35
Per share.Market prices of the shares were as follows:
The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2015.The Black-Scholes option pricing model determines total compensation expense to be $800,000.What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2015 under the fair value method?

A)$1,400,000.
B)$880,000.
C)$800,000.
D)$400,000.

Question 67

Use the following information for questions
On May 1, 2016, Marly Co.issued $500,000 of 7% bonds at 103, which are due on April 30, 2026.Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's ordinary shares $15 par value, were attached to each $1,000 bond.The bonds without the warrants would sell at 96.On May 1, 2016, the fair value of Marly's shares was $35 per share and of the warrants was $2.
On May 1, 2016, Marly should credit Share Premium-Share Warrants for

A)$20,600
B)$35,000
C)$20,000
D)$15,000

Question 68

On March 1, 2016, Ruiz Corporation issued $800,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2036.In addition, each $1,000 bond was issued with 25 detachable share warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz ordinary shares, par value $25.The bonds without the warrants would normally sell at 95.On March 1, 2016, the fair value of Ruiz's ordinary shares was $40 per share and the fair value of the warrants was $2.What amount should Ruiz record on March 1, 2016 as share premium-share warrants?

A)$40,000
B)$41,600
C)$72,000
D)$83,200

Question 69

Vernon Corporation offered detachable 5-year warrants to buy one ordinary share (par value $5) at $20 (at a time when the shares were selling for $32).The price paid for 2,000, $1,000 bonds with the warrants attached was $205,000.The market price of the Vernon bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000.What amount should be allocated to the warrants?

A)$20,000
B)$25,000
C)$24,000
D)$20,500

Question 70

During 2016, Gordon Company issued at 104 three hundred, $1,000 bonds due in ten years.One detachable share warrant entitling the holder to purchase 15 shares of Gordon's ordinary shares was attached to each bond.At the date of issuance, the market value of the bonds, without the share warrants, was quoted at 96.The fair value of each detachable warrant was quoted at $40.What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's equity?

A)$0
B)$12,000
C)$24,000
D)$12,480

Question 71

On January 1, 2015, Ritter Company granted share options to officers and key employees for the purchase of 10,000 ordinary shares of the company's $1 par at $20 per share as additional compensation for services to be rendered over the next three years.The options are exercisable during a five-year period beginning January 1, 2018 by grantees still employed by Ritter.The Black-Scholes option pricing model determines total compensation expense to be $90,000.The market price of ordinary shares was $26 per share at the date of grant.The journal entry to record the compensation expense related to these options for 2015 would include a credit to the Share Premium-Share Options account for

A)$0.
B)$18,000.
C)$20,000.
D)$30,000.

Question 72

On January 1, 2016 Reese Company granted Jack Buchanan, an employee, an option to buy 100 shares of Reese Co.shares for $40 per share, the option exercisable for 5 years from date of grant.Using a fair value option pricing model, total compensation expense is determined to be $1,200.Buchanan exercised his option on September 1, 2016, and sold his 100 shares on December 1, 2016.Quoted market prices of Reese Co.shares during 2016 were: The service period is for two years beginning January 1, 2016.As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2016 on its books in the amount of

A)$0.
B)$600.
C)$1,200
D)$1,400

Question 73

On January 1, 2016, Trent Company granted Dick Williams, an employee, an option to buy 100 shares of Trent Co.shares for $30 per share, the option exercisable for 5 years from date of grant.Using a fair value option pricing model, total compensation expense is determined to be $900.Williams exercised his option on September 1, 2016, and sold his 100 shares on December 1, 2016.Quoted market prices of Trent Co.shares during 2016 were: The service period is for two years beginning January 1,2016.As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2016 on its books in the amount of

A)$1,000.
B)$900.
C)$450.
D)$0.

Question 74

Use the following information for questions
On May 1, 2016, Payne Co.issued $300,000 of 7% bonds at 103, which are due on April 30, 2026.Twenty detachable share warrants entitling the holder to purchase for $40 one share of Payne's ordinary shares, $15 par value, were attached to each $1,000 bond.The bonds without the warrants would sell at 96.On May 1, 2016, the fair value of Payne's shares was $35 per share and of the warrants was $2.
On May 1, 2016, Payne should record bonds at payable

A)discount of $296,640.
B)discount of $288,000.
C)discount of $300,000.
D)premium of $309,000.

Question 75

Use the following information for questions
On May 1, 2016, Payne Co.issued $300,000 of 7% bonds at 103, which are due on April 30, 2026.Twenty detachable share warrants entitling the holder to purchase for $40 one share of Payne's ordinary shares, $15 par value, were attached to each $1,000 bond.The bonds without the warrants would sell at 96.On May 1, 2016, the fair value of Payne's shares was $35 per share and of the warrants was $2.
On May 1, 2016, Payne should credit Share Premium -Share Warrants for

A)$9,000.
B)$12,000.
C)$21,000.
D)$12,360.

Question 76

On June 30, 2015, Yang Corporation granted compensatory share options for 20,000 shares of its $24 par value ordinary shares to certain of its key employees.The market price of the ordinary shares on that date was $31 per share and the option price was $28.Using a fair value option pricing model, total compensation expense is determined to be $64,000.The options are exercisable beginning January 1, 2017, providing those key employees are still in the employ of the company at the time the options are exercised.The options expire on June 30, 2018.
On January 4, 2017, when the market price of the shares was $36 per share, all options for the 20,000 shares were exercised.The service period is for two years beginning January 1, 2015.Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2015?

A)$64,000
B)$32,000
C)$15,000
D)$0

Question 77

On January 1, 2016, Evans Company granted Tim Telfer, an employee, an option to buy 1,000 ordinary shares of Evans Co.for $25 per share, the option exercisable for 5 years from date of grant.Using a fair value option pricing model, total compensation expense is determined to be $7,500.Telfer exercised his option on September 1, 2016, and sold his 1,000 shares on December 1, 2016.Quoted market prices of Evans Co.shares during 2016 were The service period is for three years beginning January 1, 2016.As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2016 on its books in the amount of

A)$9,000.
B)$7,500.
C)$2,500.
D)$1,500.