A7_Check
Assignment #7
Check Numbers
Problem #1
Journal entry July 1, 2023: Credit PIC-Excess of Par, $2,142,000.00
Problem #2
Journal entry December 31, 2023: Credit PIC-Stock Options, $8,000.00
Problem #4
Wa
ants: Number of shares for the incremental effect is 10,000.
ACCTG472_A7_sol
Page 1
THE PENNSYLVANIA STATE UNIVERSITY
Accounting 472
Intermediate Financial Accounting II – Spring 2021
Assignment #7
GENERAL INSTRUCTIONS:
This assignment is due on Tuesday, April 20th at 5:00 p.m. Please submit your solution on
Canvas using Excel by 5:00 p.m. on the due date. Note that late assignments will not be
accepted.
Problem #1
Traditional Stock Option Plan – Cliff Vesting
At the beginning of 2020, the Deer Run Corporation made a grant of 40,000 stock options to
eight senior executives. After a vesting period of three years, each option can be exercised at a
price of $50. The fair market value of each option on the grant date is $70. The common stock
has a par value of $1 and a market value on the grant date of $50. On July 1, 2023, and August
30, 2024, 18,000 and 15,000 of the options were exercised. The remaining options were not
exercised by January 1, 2025, the date on which the options expire.
REQUIRED:
1. Calculate compensation expense related to the grant.
2. Prepare the required journal entries for XXXXXXXXXX.
Problem #2
Traditional Stock Option Plan – Graded Vesting
On January 2, 2021, the Life Science Corporation granted 9,000 stock options allowing
employees to purchase 9,000 shares of the company’s common stock at $50 per share. A third of
the options vest at the end of each of the next three years (i.e., a third will vest at the end of
XXXXXXXXXXThe company treats each tranche as a separate award based on the vesting date. The fair
values of the options that vest at the end of XXXXXXXXXXare $5.00, $6.00, and $8.00, respectively.
REQUIRED:
1. Calculate compensation expense for Life Science during XXXXXXXXXX.
2. Prepare the journal entries for XXXXXXXXXX.
Page 2
Problem #3
Basic EPS and Weighted Average Number of Shares
During 2021, Daktronics Incorporated had the following transaction in its common stock:
• January 1 – 880,000 shares of common stock were outstanding.
• April 3 – 100,000 shares were re-acquired.
• July 2 – 200,000 shares were issued.
• October 1 – The company had a 2-for-1 stock split
• October 3 – 50,000 shares were issued.
Daktronics reported net income of $560,000 and paid prefe
ed dividends of $40,000 during
2021. The tax rate is 40%.
REQUIRED:
1. Compute the weighted average number of shares for 2021.
2. Compute basic EPS for Daktronics for 2021.
Problem #4
Diluted EPS with Stock Options, Wa
ants, and Convertible Bonds
During 2021, the Minnesota Design Company had the following information regarding its capital
structure:
• 70,000 stock options with an exercise price of $45. The stock options were
issued during 2018.
• 10,000 wa
ants with an exercise price of $40. Each wa
ant is convertible into
two shares of common stock. The wa
ants were issued during 2019.
• 500,000 shares of common stock with a par value of $1. No stock was purchased
or issued during 2021.
• 3,000 5% convertible bonds. Each $100 bond can be converted into 10 shares of
common stock. The bonds were issued on January 1, 2019, and can be converted
at any time after December 31, 2020.
Minnesota Design reported net income of $670,000 during 2021 and paid dividends on prefe
ed
stock of $20,000. The tax rate during 2021 is 40%. The average market price of Minnesota
Design’s stock during 2021 was $80.
REQUIRED:
1. Compute basic EPS for Minnesota Design for 2021.
2. Determine the dilution effect for each convertible security.
3. Compute diluted EPS for Daktronics for 2021.