Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Horrocks' common shares have a market price of $10 per share on January 1, 2017, the grant date, and at December 31, 2018, averaging $10 throughout the year. When calculating diluted EPS at December 31, 2018, the net increase in the denominator of the EPS fraction will be:
A) 0 shares.
B) 60,000 shares.
C) 120,000 shares.
D) 180,000 shares.

Question

Quizplus · Accepted Answer

The total compensation for the award is $1,800,000 ($10 market price per share 180 000 shares). Because the stock award vests over three years, it is expensed as $600,000 each year for three years. At the end of 2018, the second year, $1,200,000 has been expensed and $600,000 remains unexpensed, so $600,000 would be the assumed proceeds in an EPS calculation. If the market price remains at $10, the $600,000 will buy back 60,000 shares and we would add to the denominator of diluted EPS 18 million common shares: 11ea937b_359f_8b09_a419_170ab41555d0_TB2599_00 *Assumed purchase of treasury shares
$600,000
÷ $10 (average market price)
60,000 shares

Horrocks Company Granted 180,000 Restricted Stock Awards of Its No