Question 1
Baltac Corp. (BC) has been a publicly accountable enterprise for the past five years. On December 16 2016 for the first time BC adopted a stock option plan for its three top executives. The company agreed to make 45000 shares available under this plan and agreed on a strike price of $21 per share. On December 16 2016 the companys share price on the TSE closed at $21.
On January 3 2017 the following options were granted to each of executives Smith Jones and Chen and the options granted at this time were estimated to have a total fair value of $405000:
– For services to be provided in 2017: 4000 options each
– For services to be provided in 2018: 5000 options each
– For services to be provided in 2019: 6000 options each
15000 options each
The options are exercisable during the two-year period from January 1 2020 to December 31 2021 after which they will expire. The market prices of the BC shares were as follows:
January 3 2017 $20.50
December 31 2017 $23.00
December 31 2018 $28.10
December 31 2019 $30.00
December 31 2020 $31.50
December 31 2021 $28.00
The three executives exercised their options as follows: 50% of the options on December 31 2020 and the other 50% on December 31 2021.
Required:
a) Determine the compensation expense recognized by BC in each year from 2016 to 2021.
b) Identify the accounts and amounts that will be reported on BCs statement of financial position for each year ending December 31 from 2016 to 2021. Also identify the balance sheet classification of these balance sheet account(s).
Question 2
Further to Question 1 (above) investigate and identify the IFRS standard name and number and paragraph number that covers how to account for such a compensatory stock option plan. Indicate what the standard requires (taken from the standard itself not the textbook).
Question 3
Assume that Baltac Corp. (see Question 1 above) is a private company that had provided a share appreciation plan instead of a stock option plan. The terms and conditions and share prices etc. were the same as provided in Question 1.
a) Determine the compensation expense recognized by BC in each year from 2016 to 2021.
b) Identify the accounts and the amounts that will be reported on BCs statement of financial position for each year ending December 31 from 2016 to 2021. Also identify the balance sheet classification of these balance sheet account(s).
Question 4
Joe Yew the Vice-president Finance of Abbass Corporation (AC) provides you with the following information related to the companys year just ended on December 31 2016. Abbass is a large private company that has opted to follow IFRS. Joe tells you that the controller is off on sick leave and had to leave before completing the financial statements that are scheduled to go to ACs Board of Directors the following day. One of the outstanding items is the determination of earnings per share.
The VP provides you with the following information:
The company ended its 2015 fiscal year with 342500 common shares 12500 shares were purchased and retired on February 28 2016 from a shareholder who was moving away and 21000 shares were issued on July 29 2016 when a subsidiary company was acquired. On September 30 2016 AC issued a 25% stock dividend.
The VP Finance also provided you with a copy of the December 31 2016 draft financial statements which included the following information:
Long-term debt:
8% convertible debentures $ 1500000
Lease obligations and other long-term debt 5000000
Shareholders equity:
$1.00 cumulative convertible Class A preferred shares
no par value 200000 shares authorized
60000 shares issued and outstanding 600000
$2.00 convertible Class B preferred shares no par
value 25000 shares authorized issued and
outstanding 475000
Common shares no par value 1000000 shares
authorized 438750 shares issued and outstanding 4400000
Contributed surplus 650000
Retained earnings 2400000
Accumulated other comprehensive income 23600
Other draft comments:
Required:
(a) Calculate basic EPS for inclusion with the financial statements.
(b) For each potentially dilutive factor individually identify the change in earnings and the
change in shares that would result as you prepare to calculate fully diluted EPS. In each
case identify whether the factor is dilutive or anti-dilutive.
(c) Assume your calculations in (a) result in the following answer for basic EPS for net
income: [Note: these are not the correct results but should be used as the starting point for completing part (c).]
Assume: Basic EPS for net income =
Earnings to common/weighted average number of shares
= $935000/400000 shares
= $2.34 per share
Using your results from part (b) and the assumption for basic earnings per share for net income as given in part (c):
(i) Indicate which securities are potentially dilutive under this assumption and
(ii) Calculate diluted EPS required under GAAP.