Questions and Answers on Share-based Compensation and Earnings per Share
Chapter 19
Share-Based Compensation and Earnings per Share
True / False Questions 1.
GAAP requires using intrinsic value accounting for employee stock options. True False 2.
If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation. True False 3.
Compensation expense must be adjusted during the service period to reflect changes in the fair value of options caused by changes in the market price of the underlying shares. True False 4.
Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements. True False 5.
Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock. True False 6.
Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS. True False 7.
Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt. True False 8.
No time-weighting of contingently issuable shares is required when computing basic EPS. True False 9.
If a company's capital structure includes convertible bonds, diluted EPS might be reduced even if the bonds are not actually converted during the year. True False 10.
If a company reports an extraordinary gain, EPS must be disclosed for both income from continuing operations and net income. True False
Multiple Choice Questions 11.
FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on
Share-Based Compensation and Earnings per Share
True / False Questions 1.
GAAP requires using intrinsic value accounting for employee stock options. True False 2.
If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation. True False 3.
Compensation expense must be adjusted during the service period to reflect changes in the fair value of options caused by changes in the market price of the underlying shares. True False 4.
Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements. True False 5.
Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock. True False 6.
Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS. True False 7.
Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt. True False 8.
No time-weighting of contingently issuable shares is required when computing basic EPS. True False 9.
If a company's capital structure includes convertible bonds, diluted EPS might be reduced even if the bonds are not actually converted during the year. True False 10.
If a company reports an extraordinary gain, EPS must be disclosed for both income from continuing operations and net income. True False
Multiple Choice Questions 11.
FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on