61.On December 31, 2007, Filmore Company granted some of its executives options to purchase 50,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2008, and represent compensation for executives' services over a three-year period beginning January 1, 2008. The Black-Scholes option pricing model determines total compensation expense to be $300,000. At December 31, 2008, none of the executives had exercised their options. What is the impact on Filmore's net income for the year ended December 31, 2008 as a result of this transaction under the fair value method? a. $100,000 increase

b.$0

c.$100,000 decrease

d.$300,000 decrease

62.Yunger Corp. on January 1, 2004, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $240,000. The options are exercisable beginning January 1, 2007, provided those key employees are still in Yunger’s employ at the time the options are exercised. The options expire on January 1, 2008.

On January 1, 2007, when the market price of the stock was $29 per share, all 40,000 options were exercised. The amount of compensation expense Yunger should record for 2006 under the fair value method is a. $0.

b.$40,000.

c.$80,000.

d.$120,000.

63.On December 31, 2007, Jansen Company granted some of its executives options to purchase 45,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options become exercisable on January 1, 2008, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2008. What is the impact on Jansen's total stockholders' equity for the year ended December 31, 2007, as a result of this transaction under the fair value method?

a.$900,000 decrease

b.$300,000 decrease

c.$0

d.$300,000 increase

64.On June 30, 2004, Sealey Corporation granted compensatory stock options for 30,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30.  The Black-Scholes option pricing model determines total compensation expense to be $360,000. The options are exercisable beginning January 1, 2007, provided those key employees are still in Sealey’s employ at the time the options are exercised. The options expire on June 30, 2008.

On January 4, 2007, when the market price of the stock was $42 per share, all 30,000 options were exercised. What should be the amount of compensation expense recorded by Sealey Corporation for the calendar year 2006 using the fair value method? a. $0.

b.$144,000.

c.$180,000.

d.$360,000.

65.In order to retain certain key executives, Tanner Corporation granted them incentive stock options on December 31, 2006. 50,000 options were granted at an option price of $35 per share.  Market prices of the stock were as follows:

December 31, 2007 $46 per share

December 31, 2008 51 per share

The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2007. The Black-Scholes option pricing model determines total compensation expense to be $500,000. What amount of compensation expense should Tanner recognize as a result of this plan for the year ended December 31, 2007 under the fair value method? a. $250,000.

b.$500,000.

c.$550,000.

d.$1,750,000.

66.Kiner, Inc. had 40,000 shares of treasury stock ($10 par value) at December 31, 2006, which it acquired at $11 per share. On June 4, 2007, Kiner issued 20,000 treasury shares to employees who exercised options under Kiner's employee stock option plan. The market value per share was $13 at December 31, 2006, $15 at June 4, 2007, and $18 at December 31, 2007. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Kiner's balance sheet at December 31, 2007? a. $140,000.

b.$180,000.

c.$220,000.

d.$240,000.

Use the following information for questions 67 through 69.

On January 1, 2006, Merken, Inc. established a stock appreciation rights plan for its executives.  It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 60,000 SARs. Current market prices of the stock are as follows:

January 1, 2006

$35 per share

December 31, 2006

38 per share

December 31, 2007

30 per share

December 31, 2008

33 per share

 

Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2006.

*67. What amount of compensation expense should Merken recognize for the year ended December 31, 2006? a. $180,000

b.$270,000

c.$225,000

d.$1,080,000

*68. What amount of compensation expense should Merken recognize for the year ended December 31, 2007? a. $0

b.$30,000

c.$300,000

d.$150,000

*69. On December 31, 2008, 16,000 SARs are exercised by executives. What amount of compensation expense should Merken recognize for the year ended December 31, 2008? a. $285,000

b.$195,000

c.$585,000

d.$78,000

70.On January 2, 2006, Carr Co. issued 10-year convertible bonds at 105. During 2008, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Carr’s common stock was 50 percent above its par value. On January 2, 2006, cash proceeds from the issuance of the convertible bonds should be reported as a. paid-in capital for the entire proceeds.

b.paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.

c.a liability for the face amount of the bonds and paid-in capital for the premium over the face amount.

d.a liability for the entire proceeds.

 

 

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