Isadore Bell Company granted 8 million of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $3 per share on January 1, 2018, the grant date. When calculating diluted EPS at December 31, 2019, what will be the net increase in the denominator of the EPS fraction if the market price of the common shares averaged $4 per share during 2019?
A) 2 million
B) 2.67 million
C) 6 million
D) 8 million

Question

Quizplus · Accepted Answer

The total compensation for the award is $24 million ($3 market price per share x 8 million shares). Because the stock award vests over three years, it is expensed as $8 million each year for three years. At the end of 2019, the second year, $16 million has been expensed and $8 million remains unexpensed, so $8 million would be the assumed proceeds in an EPS calculation. If the market price averages $4, the $8 million will buy back 2 million shares and we would add to the denominator of diluted EPS 6 million common shares: 11ea937b_35a1_fc22_a419_2b94d2554ed3_TB2599_00 11ea937b_35a1_fc23_a419_61ab27775e0b_TB2599_00

Isadore Bell Company Granted 8 Million of Its No Par