Please answer on question sheet. Use GAAP system.
True/False Question 1. GAAP requires using intrinsic value accounting for employee stock options. True False Multiple Choice Questions 2. The compensation associated with restricted stock under a stock award plan is: A. the book value of an unrestricted share of the same stock times the number of shares. B. the estimated fair value of a share of similar stock times the number of shares. C. allocated to expense over the service period which usually is the vesting period. D. the book value of a share of similar stock times the number of shares. The following information refers to questions 5 & 6: On January 1, 2011, M Company granted 90,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2013 and expire on January 1, 2017. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. 5. What amount should M recognize as compensation expense for 2011? A. $30,000 B. $60,000 C. $120,000 D. $150,000 6. If unexpected turnover in 2012 caused the company to estimate that 10% of the options would be forfeited, what amount should M recognize as compensation expense for 2012? A. $30,000 B. $60,000 C. $120,000 D. $150,000 7. Under its executive stock option plan, N Corporation granted options on January 1, 2011, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives? A. $0 B. $20 million C. $60 million D. $90 million 8. The compensation associated with executive stock option plans is: A. the book value of a share of the company's shares times the number of options B. the estimated fair value of the options C. allocated to expense over the number of years until expiration D. recorded as compensation expense on the date of grant Practical Questions 1. The Peach Corporation provides restricted stock to certain executives. Under the plan, the company granted 30 million shares on January 1, 2011, which vest in four years. The fair value of the shares is $14. No forfeitures are anticipated. Ignore taxes. Required: 1. Determine the total compensation cost pertaining to the restricted stock. 2. Prepare the appropriate journal entry (if any) to record the award of restricted stock on January 1, 2011. 3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2011
