Exercise 18-12
Requirement 1
$2.50fair value per share
x 12 millionshares granted
= $30 millionfair value of award
Requirement 2
no entry
Requirement 3
($ in millions)
Compensation expense ($30 million ÷ 3 years) 10
Paid-in capital – restricted stock 10
Requirement 4
Compensation expense ($30 million ÷ 3 years) 10
Paid-in capital – restricted stock 10
Requirement 5
Compensation expense ($30 million ÷ 3 years) 10
Paid-in capital – restricted stock 10
Requirement 6
Paid-in capital – restricted stock 30
Common stock (12 million shares x $1 par) 12
Paid-in capital – excess of par (remainder) 18
Exercise 18-14
Requirement 1
$3fair value per option
x 4 millionoptions granted
= $12 milliontotal compensation
Requirement 2
no entry
Requirement 3
($ in millions)
Compensation expense ($12 million ÷ 2 years) 6
Paid-in capital – stock options 6
Requirement 4
Compensation expense ($12 million ÷ 2 years) 6
Paid-in capital – stock options 6
Requirement 5
By the alternate approach, no compensation is recorded unless the options have “intrinsic value.” Because the market price does not exceed the exercise price, these options are not recorded. However, pro forma disclosure is required of both net income and earnings per share calculated as if the elective approach had been followed. In addition, disclosure notes should include other information to permit comparability between those companies that elect the FASB’s approach and those that do not.
Exercise 18-15
Requirement 1
At January 1, 2003, the estimated value of the award is:
$3estimated fair value per option
x 25 millionoptions granted
= $75 milliontotal compensation
Requirement 2
($ in millions)
Compensation expense ($75 million ÷ 3 years) 25.0
Paid-in capital – stock options 25.0
Requirement 3
Compensation expense (calculated below) 22.75
Paid-in capital – stock options 22.75
At December 31, 2004, the estimated value of the award is:
$75.0 milliontotal compensation
x 94% adjustment for 6% forfeiture
= $70.5 millionadjusted total compensation
- 25.0 millionexpensed previously
$45.5 millionto be expensed
÷ 2 years
= $22.75 millionexpense in each of last two years
Exercise 18-17
Requirement 1
At January 1, 2003, the total compensation is measured as:
$8.50market value per share
(8.00)exercise price
$ .50 intrinsic value per option
x 40 millionoptions granted
= $20 millionintrinsic value of award
Requirement 2
($ in millions)
Compensation expense ($20 million ÷ 2 years) 10
Paid-in capital – stock options 10
Requirement 3
Compensation expense ($20 million ÷ 2 years) 10
Paid-in capital – stock options 10
Requirement 4
Cash ($8 exercise price x 30 million shares) 240
Paid-in capital - stock options
(3/4account balance of $20 million) 15
Common stock (30 million shares at $1 par per share) 30
Paid-in capital – excess of par (remainder) 225
Note: The market price at exercise is irrelevant.
Requirement 5
Paid-in capital – stock options ($20 -15 million) 5
Paid-in capital – expiration of stock options 5
Exercise 18-19
Requirement 1
No liability or deferred compensation because the intrinsic value of the SARs is zero: [$46 – $46] x 24 million shares = $0
Requirement 2
December 31, 2003 ($ in millions)
Compensation expense* 24
Liability – SAR plan 24
* Calculation:
[$50-46] x 24 million x 1/4– $0 =$24
estimated fraction expensed current
total ofservice earlierexpense
compensation to date
December 31, 2004
Compensation expense* 12
Liability – SAR plan 12
* Calculation:
[$49-46] x 24 million x 2/4– $24 =$12
estimated fraction expensed current
total ofservice earlierexpense
compensation to date
December 31, 2005
Compensation expense* 36
Liability – SAR plan 36
* Calculation:
[$50-46] x 24 million x 3/4– [$24 + 12] =$36
estimated fraction expensed current
total ofservice earlierexpense
compensation to date
December 31, 2006
Compensation expense* 48
Liability – SAR plan 48
* Calculation:
[$51-46] x 24 million x 4/4– [$24 + 12 + 36] =$48
estimated fraction expensed current
total ofservice earlierexpense
compensation to date
Exercise 18-19 (concluded)
Requirement 3
Liability – SAR plan 24
Compensation expense* 24
* Calculation:
[$50-46] x 24 million x 4/4– [$24 + 12 + 36 + 48] = $(24)
estimated fraction expensed current
total ofservice earlierexpense
compensation to date
Requirement 4
Compensation expense* 72
Liability – SAR plan 72
* Calculation:
[$53-46] x 24 million x 4/4– [$24 + 12 + 36 + 48 - 24] = $72
actual fraction expensed current
total ofservice earlierexpense
compensation to date
Liability – SAR plan (account balance) 168
Cash 168
Exercise 18-20
1.c
2.c
3.b
Exercise 18-22
Requirement 1
Wages expense (700 x $900) 630,000
Liability – compensated future absences 630,000
Requirement 2
Liability – compensated future absences 630,000
Wages expense ($31 million + [5% x $630,000]) 31,031,500
Cash (or wages payable) (total) 31,661,500
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