P19-1 P19-5 P20-1 P20-7 P20-8 P20-12


P19-1 On October 15, 2012, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2013, 20 million stock options were granted, exercisable for 20 million shares of Ensor’s $1 par common stock. The options are exercisable between January 1, 2016, and December 31, 2018, at 80% of the quoted market price on January 1, 2013, which was $15. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $6 per option.


Two million options were forfeited when an executive resigned in 2014. All other options were exercised on July 12, 2017, when the stock’s price jumped unexpectedly to $19 per share.


1. When is Ensor’s stock option measurement date?

2. Determine the compensation expense for the stock option plan in 2013. (Ignore taxes.)

3. What is the effect of forfeiture of the stock options on Ensor’s financial statements for 2014 and 2015?
4. Is this effect consistent with the general approach for accounting for changes in estimates? Explain.
5. How should Ensor account for the exercise of the options in 2017? (Enter your answers in millions. (Round your answers to the nearest dollar amount. Omit the “$” sign in your response.)



P19-5 Apple inc provides its executives compensation under a variety of share based compensation plan including restricted stock awards. The following disclosure note from Apple’s 2009 annual report describes the plan created for the company’s chief executive officer, Steve Jobs;



On March 19, 2003, the company’s board of Directors granted 10 million shares of restricted stock to the company’s CEO that vested on March 19, 2006. The amount of the restrict stock award expensed by the company was based on the closing market price of the company’s common stock on the date of grant and was amortized ratably on a straight line basis over the three year requisite service period. Upon vesting during 2006, the 10 million shares of restricted stock had a fair value of $646.6 million and had grant date fair value of $7.48 per share. The restricted stock award wat net share settled such that the company withheld shares with value equivalent to the CEO’s minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld of 4.6 million were based on the value of the restricted stock awarded on the vesting date as determined by the company’s closing stock price of $64.66. the remaining shares net of those withheld were delivered to the company’s CEO. Total payments for the CEO’s tax obligations to the taxing authorities were $296 million in 2006 and are reflected as a financing activity within the consolidated statements of cash flows. The net share settlement had the effect of share repurchases by the company as it reduced and retired the number of shares outstanding and did not represent an expense to the company. The company’s CEO has no remaining shares of restricted stock.



Real World Financials


1.  How much compensation did Apple record for its CEO related to the restricted stock in its fiscal year ended.

2. What was the CEO’s combined income tax and employment tax rate that Apple used to determine the shares to be withheld at vesting?

3. From the information provided in the disclosure note, recreate the journal entries Apple used to record compensation expense and its related tax affects on September 24, 2005 , the end of the 2005 fiscal year.

4. From the information provided in the disclosure not, recreate the journal entries Apple used to record the vesting of the restricted stock and its related tax effect s on March 16, 2006, assuming the remaining compensation expense already has been recorded.


P 20-1 Change in inventory costing methods; comparative income statements

The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2013. At December 31, 2012, inventories were $120,000 (average cost basis) and were $124,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $155,000 at December 31, 2012, and $160,000 at December 31, 2011, if determined on a FIFO basis. A tax rate of 40% is in effect for all years.


One hundred thousand common shares were outstanding each year. Income from continuing operations was $400,000 in 2012 and $525,000 in 2013. There were no extraordinary items either year.



1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)


2. Prepare the 2013–2012 comparative income statements beginning with income from continuing operations. Include per share amounts.



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