Homework answers / question archive / Accounting 5120 Stock-based Compensation assignment Fall 2016   Purpose of this assignment: Practice accounting for stock-based compensation Practice preparing a financial statement footnote Practice using a GAAP checklist Practice finding example disclosures from other company’s financial statements   You have been hired by Utes

Accounting 5120 Stock-based Compensation assignment Fall 2016   Purpose of this assignment: Practice accounting for stock-based compensation Practice preparing a financial statement footnote Practice using a GAAP checklist Practice finding example disclosures from other company’s financial statements   You have been hired by Utes

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Accounting 5120

Stock-based Compensation assignment

Fall 2016

 

Purpose of this assignment:

1. Practice accounting for stock-based compensation
2. Practice preparing a financial statement footnote
3. Practice using a GAAP checklist
4. Practice finding example disclosures from other company’s financial statements

 

You have been hired by Utes.com to help prepare the Company’s financial statements for the year ended December 31, 2016. The CFO assigns you to do all of the accounting and reporting for stock-based compensation.  Specifically, the CFO asked you to perform the following tasks:

 

1. Calculate stock-compensation expense for 2016
2. Calculate any information required for the stock-based compensation expense footnote disclosure
3. Calculate ACTUAL forfeitures for each series of restricted stock and the stock options. If the actual percentage of awards forfeited (actual shares or options divided by total shares or options issued) is higher than the assumed forfeiture rate, use the actual forfeiture rate instead of the assumed rate. 
4. Prepare all required journal entries for 2016.  You only need to make journal entries at the end of the 2016 (not monthly entries).  Assume no previous journal entries for stock-based compensation were recorded in 2016.  The journal entries should include an entry for option exercises.  Assume par value is $1 per share.
5. Prepare the stock-based compensation Footnote for the December 31, 2016 financial statements.  As part of this process, locate an example stock-compensation footnote and provide a screen shot (screenshot of just one page is OK if the example footnote you find has multiple pages) and link to the website. 
6. As part of the process of preparing the stock-based compensation footnote, complete the gaap checklist for stock-based compensation to ensure all of the appropriate disclosures are made.

Notes:

 

Assume the following:

• Fair value of the Company’s common stock on June 1, 2016 was $12/share
• Risk Free Interest Rate on June 1, 2016: 5%
• Volatility: 75%

 

• The CFO provides you with a copy of the board minutes from the June 1, 2016 meeting in which the board of directors approved the equity award plan and officially authorized the granting of the awards. 

 

• You will need to calculate the fair value of the options using the black-scholes model.  Use one of the following free options on the internet (you may want to use both of them to make sure you’re getting the correct value):
  • http://www.erieri.com/blackscholes  (if you use this option, the “European call” is the fair value)
  • https://www.mystockoptions.com/black-scholes.cfm
  • Important note: on the “Maturity” line, you should use average time until an option expires – not the full 10-year life.  So assume this is 7 years.
  • Please include a screenshot of the calculation in your spreadsheet

 

• Utes.com assumes a 10% forfeiture rate for restricted stock and 20% for stock options. 

 

• As of December 31, 2016, management assumes that net income for the 12 months ended May 31, 2017 will be $25.5 million and for the 24 months ended May 31, 2018 will be $62 million

 

• The following employees exercised stock options during 2016
  • Employee #2 exercised 200 shares
  • Employee #9 exercised 300 shares
  • Employee #12 exercised 50 shares
  • Employee #19 exercised 50 shares
  • Employee #22 exercised 10 shares

 

• The following employees left the company in 2016 on the following dates:
  • Chief Golf Officer left on October 1, 2016
  • Employees #5, #6, #7, and #8 all left on June 20
  • Employee #10 left on November 22; this employee exercised all vested options prior to leaving the company.
  • Employee #24 left on December 10

 

• For the footnote rollforward schedule for options, Forfeitures represent shares that were never vested and cancelled; Cancellations represents shares that were vested but never exercised before they were cancelled. Assume that no employees who left the company exercised any options except for Employee #10.
   

 

Please turn in the following on canvas for Part 1 of the assignment (70 points):

1. Spreadsheet.  Spreadsheet should include the following:
   1. Calculation of stock-compensation expense (with enough detail that it’s clear to me how you calculated the numbers)
   2. All required journal entries for 2016 (note: record all journal entries at December 31, 2016 – assume no journal are made prior to December 31, 2016)
   3. Screenshot of the black-scholes calculation
   4. Calculation of actual forfeiture rate for each of the three types of awards

Please turn in the following on canvas for Part 2 of the assignment (80 points):

1. Spreadsheet.  Spreadsheet should include the following:
   1. Everything that was included in the spreadsheet for Part 1 (because you’ll need that information for the footnote disclosures).
   2. Calculations of amounts used in the footnote disclosure.
   3. Screenshot of the example stock compensation footnote you located
2. Stock-based compensation footnote for the financial statements
3. Completed gaap checklist for stock-based compensation

 

You may work in groups on this assignment if you like.  You may have a Maximum of two people in your group.  Note: working in a group means that each group member actively participates in all parts of this assignment.   If you work in a group, only one group members needs to submit the assignment.  Please make sure both group member names are on the assignment.

 

Only Part 1 is needed.