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D preferred stock is considered a hybrid security

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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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