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Question 11
A stock option award was granted at the beginning of the current year
(1/1/x4) to three managers. The total shares granted are 30,000 (10,000
each). The option price and market price of the $2 par common stock on
the grant date was $6. The options vest Dec. 31, 20x7. Applying an
option pricing model yielded a fair value of $1 per option. Assume all of
the options were exercised when the stock price was $10. What amount
of compensation expense in total is recognized over the service period
and by what amount is the firm's net assets increased as a result of the
option award.
Question 12
Because management has been so successful, key executives were
granted 1,000 stock appreciation rights at the beginning of 20x4 calling
for the difference between the market price of the firm's stock at grant
date and at exercise date to be paid in cash. The employees must work
for 3 years after which the rights are exercisable. The market price at the
beginning of 20x4 was $10, and on the exercise date (during 20x7) was
$18. The fair values of one right, based on an option pricing model, are
as follows: What amount of compensation expense is recognized for
years 20x6 and 20x7?
Question 13
Mobe Co. reported the following operating income (loss) for its first
three years of operations: For each year, there were no deferred income
taxes, and Mobe's effective income tax rate was 30%. In its 2004 income
tax return, Mobe elected to carry back the maximum amount of loss
possible. In its 2005 income statement, what amount should Mobe report
as total income tax expense?