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Unformatted text preview: issued from treasury), the statement of stockholders’ equity must reflect
the change in shares outstanding. Since the options are now considered an expense, the income
statement is also affected, as is the statement of cash flow (and balance sheet) for any cash received by
the company when the options are exercised by the employee. c. If the options were not considered an expense, Microsoft’s net income would have been considerably
higher in the years shown, so the expense is definitely material to the company. Net income would have
been higher by 11.6%, 8.5% and 11.4% for 2009, 2008 and 2007, respectively, if the cost of the options
had not been expensed. d. Many companies resisted the expensing of options due to the negative effect the move would have on
earnings. Many startup and technology companies relied heavily on stock options for employee
compensation. These companies knew that the large amount of options exercised by their employees
would dramatically increase expenses and reduce earnings. ID12–14
The Statement of Stockholders’ Equity for Emerson Electric for three years is shown at the end of Chapter
12 in the textbook. Under the Retained Earnings section, the dividend history for 2007 – 2009 can be
seen. The company has consistently paid cash dividends in each of the years. On a per share basis, the
dividend payment is rising from 2007’s $1.05 per share to 2008’s $1.20...
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