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EPS in the 2012 comparative financial statements(amounts in thousands, except per share amount) net Earnings —————————————————————————— –––– = $1.00 200 x (2.00) 400
Exercise 19-12 (amounts in thousands, except per share amount)
net preferred Earnings $2,000 – $50 $1,950 ————————————————— = ———— = $1.95 800 (1.25) 1,000
Exercise 19-13 (amounts in thousands, except per share amount) net preferred Net Loss —————————————————————— = —— = ($.50) 373 + 12 (7/12) 380 19.5% x $800*= $76 *8,000 shares x $100 par = $800,000 Exercise 19-14 (amounts in millions, except per share amount) net preferred Earnings —————————————————————— = ——— = $.65 200 (1.05) – 24 (10/12) (1.05)+ 4 (3/12) 190 adjustment 19% x $300 = $27
Exercise 19-15 (amounts in millions, except per share amount) Basic EPS net preferred $150 – $27 $123 —————————————————————————— = —— = $.65 200 (1.05) – 24 (10/12) (1.05)+ 4 (3/12) 190 adjustment
Diluted EPS net preferred $150 – $27 $123 —————————————————————————— = —— = $.63 200 (1.05) – 24 (10/12) (1.05)+ 4 (3/12) + (30 – 24*) 196 adjustment
*Purchase of treasury stock 30 million shares x $56 (exercise price) $1,680 million ÷ $70 (average market price) 24 million shares
Exercise 19-16 (amounts in millions, except per share amount) Basic EPS net preferred $150 – $27 $123 —————————————————————————— = —— = $.62 200 (1.05) – 24 (10/12) (1.05)+ 4 (3/12) + 30(4/12) 200 adjustment
Diluted EPS net preferred $150 – $27 $123 ———————————————————————————— = —— = $.60 200 (1.05) – 24(10/12) (1.05) + 4(3/12) + (30 – 24*)(8/12) + 30(4/12) 204 shares treasury new assumed exercise actual exercise adjustment
*Purchase of treasury stock 30 million shares
Exercise 19-17 (amounts in millions, except per share amount) Basic EPS net preferred $150 – $27* $123 ———————————————————————————— = — = $.65 200 (1.05) – 24 (10/12) (1.05)+ 4 (3/12) 190 adjustment *9% x $100 x 3 million shares = $27 million preferred dividends
Diluted EPS net preferred after-tax $150 – $27 + $5* – 40% ($5**) $126 ———————————————————————————— = — = $.62 200 (1.05) – 24 (10/12) (1.05)+ 4 (3/12) + (30 – 24**) + 6 202 adjustment **8% x $62.5 million = $5 million interest
**Purchase of treasury stock 30 million shares
Exercise 19-18 (amounts in thousands, except per share amount) Basic EPS net ———————————————————— = —— = $8.47 80 + 15 (4/12) 85 Diluted EPS net —————————————————————— = —— = $8.09 80 + 15 (4/12) + (24 – 20)* 89
24,000 shares x $37.50 (exercise price) $900,000 ÷ $45 (average market price) 20,000 shares Exercise 19-19 (amounts in thousands, except per share amounts) Basic EPS net preferred ——————————————————————— = ——— = $4.40 100 100
Diluted EPS net preferred preferred after-tax ——————————————————————————— = —— = $3.46 100 +32 + 30 162
*12,000 shares x $5 ** $1,000,000 x 10%
Order of Entry: Note that we included in our calculation, the convertible security with the lowest “incremental effect” ($60/32 = $1.87) before the one with the higher effect ($60/30 = $2.00).
After including the conversion of the preferred stock only, EPS is $500 / 132 = $3.79. The $2.00 incremental effect of the conversion of the bonds is less than that amount, so in this instance the order of entry was unimportant. But there are situations in which the incremental effect of the second convertible security is higher than the calculation prior to its inclusion. In those situations, including the second security is antidilutive. That’s why we should include securities in the calculation in reverse order, beginning with the lowest incremental effect (most dilutive). Exercise 19-20 (amounts in thousands, except per share amounts) Basic EPS net Earnings —————————— = ——— = $.15 800 800 at Jan. 1 Diluted EPS net Earnings —————————— = ——— = $.14 800 + (54 – 18*) 836 at Jan. 1 assumed vested Proceeds: $270,000 ($5 market price per share x 54,000 shares) ÷ 3 years vesting period $90,000 compensation expense per year x 2 $180,000 expensed in 2010 and 2011 $90,000 unexpensed compensation at Dec. 31, 2011 *Assumed purchase of treasury shares $90,000 proceeds ÷ $5 (average market price) 18,000 shares
Note: The proceeds also must be increased (or decreased) by any tax benefits that would be added to (or deducted from) paid-in capital when the eventual tax deduction differs from the amount expensed, the “excess tax benefit.” Since that occurs when the stock price at vesting differs from the stock price at the grant date, the fact that the market price remained at $5 avoided that issue. Exercise 19-21 Requirement 1 $5 fair value per share The $90 million total compensation is expensed equally over the three-year vesting period, reducing earnings by $30 million each year. Compensation expense.......................................................................... 30 Compensation expense.......................................................................... 30
Requirement 2 The total compensation for the award is $90 million ($5 market price per share x 18 million shares). Because the stock award vests over three years, it is expensed as $30 million each year for three years. At the end of 2011, the second year, $60 million has been expensed and $30 million remains unexpensed, so $30 million would be the assumed proceeds in an EPS calculation. If the market price averages $5, the $30 million will buy back 6 million shares and we would add to the denominator of diluted EPS 12 million common shares:
No adjustment to the numerator 18 million – 6* million = 12 million
*Assumed purchase of treasury shares $30 million ÷ $5 (average market price) 6 million shares
Note: The proceeds also must be increased (or decreased) by any tax benefits that would be added to (or deducted from) paid-in capital when the eventual tax deduction differs from the amount expensed, the “excess tax benefit.” Since that occurs when the stock price at vesting differs from the stock price at the grant date, the fact that the market price remained at $5 avoided that issue. Exercise 19-22 (amounts in millions, except per share amounts) Basic EPS net —————————————————————————— = ——— = $3.89 35 + 4 (9/12) 38 Diluted EPS net —————————————————————————— = ——— = $3.79 35 + 4 (9/12) + 1 39 Because the conditions are met for issuing 1 million shares, those shares are assumed issued for diluted EPS. Conditions for the other 1 million shares are not yet met, so as they are ignored.
Exercise 19-23 (amounts in thousands, except per share amounts) Basic EPS net —————————————————————————— = ——— = $2.96 600 + 100 (9/12) 675
Diluted EPS net —————————————————————————— = ——— = $2.74 600 + 100 (9/12) + 4 x 10 + 15 730 * Because the conditions currently are met (i.e., market price exceeds $48) for issuing 10,000 shares in each of the next 4 years, those shares are assumed issued for diluted EPS. **The condition for the other 15,000 shares also is met (the controller is employed), so those shares are assumed issued for diluted EPS.
Exercise 19-24
List A List B
__e_ 1. Subtract preferred dividends. a. Options exercised. __m_ 2. Time-weighted by 5/12. b. Simple capital structure. __a_ 3. Time-weighted shares assumed issued c. Basic EPS. plus time-weighted-actual shares. d. Convertible preferred stock. __i_ 4. Midyear event treated as if e. Earnings available to common it occurred at the beginning of the shareholders. reporting period. f. Antidilutive. __l_ 5. Preferred dividends do not reduce g. Increased marketability. earnings. h. Extraordinary items. __b_ 6. Single EPS presentation. i. Stock dividend. __g_ 7. Stock split. j. Add after-tax interest to numerator. __d_ 8. Potential common shares. k. Diluted EPS. __f_ 9. Exercise price exceeds market price. l. Noncumulative, undeclared __c_ 10. No dilution assumed. preferred dividends. __j_ 11. Convertible bonds. m. Common shares retired in August. _n_ 12. Contingently issuable shares. n. Include in diluted EPS when _k_ 13. Maximum potential dilution. conditions for issuance are met. _h_ 14. Shown between per share amounts for net income and for income from continuing operations.
Exercise 19-25 Requirement 1
The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. The appropriate accounting treatment for the situation is specified in FASB ASC 718–10–50: “Compensation–Stock Compensation–Overall–Disclosure.”
Requirement 2
Section 718–10–50–2c states that companies must disclose:
For the most recent year for which an income statement is provided, both of the following: 1. The number and weighted-average exercise prices (or conversion ratios) for each of the following groups of share options: 1. Those outstanding at the beginning of the year 2. Those outstanding at the end of the year 3. Those exercisable or convertible at the end of the year 4. Those that during the year were: 1. Granted 2. Exercised or converted 3. Forfeited 4. Expired Exercise 19-26
The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. The specific citation for each of the following items is:
1. Stock options: FASB ASC 718–10–30: “Compensation-Stock Compensation–Overall–Initial Measurement.”
2. The measurement date for share-based payments classified as liabilities: FASB ASC 718–30–30–1: “Compensation–Awards Classified as Liabilities– Initial Measurement–Public Entity.”
Date: 2016-01-14; view: 898
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