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In: Accounting
Identifying and Analyzing Financial Statement Effects of Share-Based Compensation Weaver Industries implements a new share-based compensation...
Identifying and Analyzing Financial Statement Effects of
Share-Based Compensation
Weaver Industries implements a new share-based compensation plan in
2014. Under the plan, the company's CEO and CFO each will receive
non-qualified stock options to purchase 100,000, no par shares. The
options vest ratably (1/3 of the options each year) over three
years, expire in 10 years, and have an exercise (strike) price of
$27 per share. Weaver uses the Black-Scholes model to estimate a
fair-value per option of $18.
(a) Use the financial statement effects template to record the
compensation expense related to these options for each year 2014
through 2016.
Use negative signs with answers, when appropriate.
|
Balance Sheet |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Transaction | Cash Asset | + |
Noncash Assets |
= | Liabilities | + |
Contributed Capital |
+ |
Earned Capital |
|
| Compensation expense recorded each year | Answer | Answer | Answer | Answer | Answer | |||||
|
Income Statement |
|||||
|---|---|---|---|---|---|
Revenue |
- |
Expenses |
= |
Net Income |
|
| Answer | Answer | Answer | |||
(b) In 2017, the company's stock price is $24. If you were the
Weaver Industries CEO, would you exercise your options?
Explain.
Because the stock price is per share, the Weaver CEO should exercise the options because she can immediately sell them for that amount.
Because the stock price is per share, the Weaver CEO can immediately recognize a gain of $3 per share by exercising the options.
Because the stock price is per share, no gain or loss would be recognized if the Weaver CEO exercises her options and immediately sold her shares.
Because the stock price is per share, the options are under-water (out of the money) and the Weaver CEO should not exercise the options.
(c) In 2019, the company's stock price is $46 and the CEO exercises
all of her options. Use the financial statement effects template to
record the exercise.
|
Balance Sheet |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Transaction | Cash Asset | + |
Noncash Assets |
= | Liabilities | + |
Contributed Capital |
+ |
Earned Capital |
|
| 2019 | Answer | Answer | Answer | Answer | Answer | |||||
|
Income Statement |
|||||
|---|---|---|---|---|---|
Revenue |
- |
Expenses |
= |
Net Income |
|
| Answer | Answer | Answer | |||
Solutions
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