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Chapter 16: 10Q (page 874)

Briefly explain the accounting requirement for stock compensation plans under GAAP.

Short Answer

Expert verified

Under US GAAP, stock-based compensation d(SBC) is perceived as a non-cash expense on the income statement. SBC cost is an operating cost (very much like wages) and is designated to the applicable working details.

Step by step solution

01

GAAP guidelines regarding requirement of accounting stock compensation

Under GAAP rules, stock options are esteemed at fair market value. Stock options are additionally pay cost to the organization. This expense is perceived as the worker acquires administration time up to the vesting date. The merged income statement will frequently not distinguish SBC on the pay explanation; however it is there inside cost classes. In fact, footnotes in financial filings will frequently detail the distribution by cost standing.

02

The concept of stock compensation is as follows

Stock compensation ought to be recorded as a cost on the income statement. Nonetheless, stock compensation expenses should likewise be remembered for the organization's balance sheet and statement of cash flows. This sum is recorded as compensation cost deducted on the period beginning with the date. The choices are conceded finished when the choices vest and can be worked out.

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Most popular questions from this chapter

(Conversion of Bonds) Aubrey Inc. issued \(4,000,000 of 10%, 10-year convertible bonds on June 1, 2017, at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semi-annually on a straight-line basis.On April 1, 2018, \)1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

(a) Prepare the entry to record the interest expense at October 1, 2017. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.)

(b) Prepare the entry(ies) to record the conversion on April 1, 2018. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made

E16-30 (L06) (Stock-Appreciation Rights) Capulet Company establishes a stock-appreciation rights program that entitles its new president Ben Davis to receive cash for the difference between the market price of the stock and a pre-established price of \(30 (also market price) on December 31, 2013, on 30,000 SARs. The date of grant is December 31, 2013, and the required employment (service) period is 4 years. President Davis exercises all of the SARs in 2019. The fair value of the SARs is estimated to be \)6 per SAR on December 31, 2014; \(9 on December 31, 2015; \)15 on December 31, 2016; \(6 on December 31, 2017; and \)18 on December 31, 2018.

Instructions

(a) Prepare a 5-year (2014鈥�2018) schedule of compensation expense pertaining to the 30,000 SARs granted president Davis.

(b) Prepare the journal entry for compensation expense in 2014, 2017, and 2018 relative to the 30,000 SARs.

E16-28 (L05) (EPS with Warrants) Howat Corporation earned \(360,000 during a period when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of \)15 per share during the period. Also outstanding were 15,000 warrants that could be exercised to purchase one share of common stock for $10 for each warrantexercised.

Instructions

(a) Are the warrants dilutive?

(b) Compute basic earnings per share.

(c) Compute diluted earnings per share.

Petrenko Corporation has outstanding 2,000 \(1,000 bonds, each convertible into 50 shares of \)10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is \(30,000 and the market price of the stock is \)21 per share. Record the conversion using the book value approach.

(Conversion of Bonds) Vargo Company has bonds payable outstanding in the amount of \(500,000, and the Premium on Bonds Payable account has a balance of \)7,500. Each \(1,000 bond is convertible into 20 shares of preferred stock of parvalue of \)50 per share. All bonds are converted into preferred stock.
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