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6332 pract exam 3 part 1 spring 2011 - Chapter 19 Multiple...

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Chapter 19 Multiple Choice Questions 17. 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 earnings in the year after the shares are granted to executives? A. $0 B. $15 million C. $40 million D. $120 million The $120 million total compensation is expensed equally over the three-year vesting period, reducing earnings by $40 million each year. AACSB: Analytic Bloom’s: Application Learning Objective: 19-01 Explain and implement the accounting for stock award plans. Level of Learning: Easy 20. If restricted stock is forfeited because an employee leaves the company, the appropriate accounting procedure is to: AACSB: Reflective thinking Bloom’s: Knowledge Learning Objective: 19-01 Explain and implement the accounting for stock award plans. Level of Learning: Medium On January 1, 2011, M Company granted 90,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2013 and expire on January 1, 2017. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant.
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21. What amount should M recognize as compensation expense for 2011? AACSB: Analytic Bloom’s: Application Learning Objective: 19-02 Explain and implement the accounting for stock options. Level of Learning: Easy 24. The compensation associated with executive stock option plans is AACSB: Reflective thinking Bloom’s: Knowledge Learning Objective: 19-02 Explain and implement the accounting for stock options. Level of Learning: Easy 25. The most important accounting objective for executive stock options is: A. Measuring and reporting the amount of compensation expense during the service period. B. Measuring their fair value for balance sheet purposes. C. To disclose increases or decreases in the stock options held at the end of each accounting period. D. None of these is correct. AACSB: Reflective thinking Bloom’s: Comprehension Learning Objective: 19-02 Explain and implement the accounting for stock options. Level of Learning: Easy
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