Ch 21: Share Based Compensation and EPS

certain employees receive compensation in a form other than cash as a way to encourage superior performance and retain and recruit employees

share based compensation plans

date at which a grantor and grantee reach a mutual understanding of the key terms and conditions of a share based payment award

grant date

to earn the rights to; a share based payment award becomes vested at the date that the grantee’s right to receive or retain shares, other instruments, or cash under thee award is no longer contingent on satisfaction of either a service condition or a performance condition; market conditions are not ___ing conditions

vest

the period or periods during which an employee is required to provide service in exchange for an award under a share based payment arrangement; the service that an employee is required to render during that period is referred to as the requisite service

Requisite service period

is presumed to be the vesting period, unless there is clear evidence to the contrary

Requisite service period

date that a share based compensation plan is exercisable by an employee

vesting date

period from the grant date to the vesting date; typically the vesting period would align with the requisite service period

vesting period

stock issued at the grant date to an employee, but the employer holds the stock in trust through the vesting period; employee must satisfy vesting requirements in order to be awarded the stock

restricted stock SHARE award

awards that provide incentives to employees to act in the interest of the shareholders

Restricted stock plans (Share and Unit)

Entry to account for award of restricted stock SHARE awards

Compensation Exp (D)
Unearned Rev (C)

employer grants a right to an employee to receive stock at a future date under certain conditions

restricted stock UNIT awards

For Stock SHARE and UNIT awards, the JEs will NEVER include___ because you give stocks

cash

if the employee leaves the company before the the vesting period:

the shares are forfeited

restricted stock UNIT awards are valued at the

FV of compensation at the grant date

What JE is recorded on the grant date

NONE

What is the JE to award stock UNIT awards?

Compensation Exp and PIC- Restricted Stock (D)
CS and PIC-Restricted Stock and APIC-CS (C)

What are the two methods to account for forfeitures?

Estimate
As Incurred

to account for forfeitures using the estimate method, the FV of the reward is reduced at the grant date by the:

amount estimated to be forfeited

If the estimate changes (to account for forfeitures), the ___ of the change in estimate is recorded in the current period

cumulative effect

to account for forfeitures using the as incurred method, the record the forfeiture in the period incurred by:

reversing compensation exp previously recorded

form of share based compensation that gives employee a right to buy a specified number of shares at an established price

stock options

stock options are similar to call options because:

you have to BUY them

incentivizes the employee to increase the market price of stock (meaning they are short term focused)

stock options

stock options are measured at the cost of compensation at the FV of award at the grant date using:

option pricing model

the models to determine option pricing includes/has:

all market conditions baked in

What is the JE to account for stock options at the grant date

NONE

What is the JE to account for stock options at the end of each year?
expense the FV of options over the requisite service period

Comp Exp
PIC-Stock Options

unless otherwise stated, a call option that gives the holder the right to purchase shares of CS from the reporting entity in accordance with an agreement upon payment of a specified amount; include but are not limited to granted and stock purchase agreements entered into with grantees

option

considered securities

option

the amount that must be paid for a share of CS upon exercise or warrant

exercise price (strike price)

aka strike price

exercise price

Date that marks the point where the employee may no longer exercise the ward under a share based pmt

Expiration date

condition affecting the vesting, exercisability, exercise price, or other pertinent factors used in determining the FV of an award that relates to both of the following
a. Rendering service or delivering goods for a specified period of time
b. Achieving a specified performance target that is defined solely by reference to the grantee’s performance related to the grantors own operations

performance condition

For performance conditions, recognize compensation exp when it is:

probable that the performance condition will be met

revision of ___ estimate fully in the year of estimate revision

performance conditions

For ___ conditions, no adjustments to the fair value determined by the models are required

market conditions

JE to record exercise of stock options

Cash and PIC-Stock Options (d)
CS and APIC-CS (C)

JE to record expiration of stock options

PIC-Stock Options (d)
PIC- Expired Stock options (C)

performance obligation after employee retirement is recognized when comp determined that it is:

probable that condition is met (even if after retired)

allows employees the opportunity to purchase shares of stock of their employer at a discounted price

employee share purchase plan

for employee share purchase plans, no compensation exp is recorded when ALL 4 conditions are met. The four conditions are:

Terms of plan are no more favorable than those available to those of same class of shares
Any purchase discount is not significant (5% not, 10% is)
Substantially all employees may participate on equitable basis
Plan incorporates no option features, other than exceptions noted

If any of the conditions are not met for employee share purchase plan, the company must recognize compensation exp for the :

stock discount extended to employees