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EPS and Common Stock Accounting

Please see attachment and work in Excel, easier to understand the concept.

Problem 1

On October 15, 2008, the board of directors of Alkaline Chemicals approved a stock option plan for key executives. On January 1, 2009, 36.8 million stock options were granted, exercisable for 36.8 million shares of Alkaline's $1 par common stock. The options are exercisable between January 1, 2012, and December 31, 2014, at 85% of the quoted market price on January 1, 2009, which was $13.78. The fair value of the 36.8 million options, estimated by an appropriate option pricing model, is $5.18 per option. 3,680,000 options were forfeited when an executive resigned in 2010. All other options were exercised on July 12, 2013, when the stock's price jumped unexpectedly to $21.91 per share.

Note: Please round all answers to the nearest dollar.
1. When is Alkaline's stock option measurement date?
2. Determine the compensation expense for the stock option plan in 2009. (Ignore taxes.)
3. What is the effect of forfeiture of the stock options on Alkaline's financial statements for 2010 and 2011?
4. Is this effect consistent with the general approach for accounting for changes in estimates? Explain.
5. How should Alkaline account for the exercise of the options in 2013?

Problem 2

On December 31, 2008, Schuttle Enterprises had 520 million of common stock outstanding. Fifteen million shares of 7%, $100 par value cumulative, nonconvertible preferred stock were sold on January 2, 2009. On April 30, 2009, Schuttle purchased 28 million shares of its common stock as treasury stock. Ten million treasury shares were sold on August 31. Schuttle issued a 4% common stock dividend on June 12, 2009. No cash dividends were declared in 2009. For the year ended December 31, 2009, Schuttle reported a net loss of $119 million, including an after-tax extraordinary loss of $377 million from a litigation settlement.

Note: Please present amounts in millions, except for per share amount.
1. Determine Schuttle's net loss per share for the year ended December 31, 2009.
2. Determine the per share amount of income or loss from continuing operations for the year ended December 31, 2009.
3. Prepare an EPS presentation that would be appropriate to appear on Schuttle's 2009 and 2008 comparative income statements. Assume EPS was reported in 2008 at $.81, based on net income (no extraordinary items) of $420 million and a weighted-average number of common shares of 520 million.

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ANSWERS
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Problem 1
On October 15, 2008, the board of directors of Alkaline Chemicals approved a stock option plan for key executives. On January 1, 2009, 36.8 million stock options were granted, exercisable for 36.8 million shares of Alkaline's $1 par common stock. The options are exercisable between January 1, 2012, and December 31, 2014, at 85% of the quoted market price on January 1, 2009, which was $13.78. The fair value of the 36.8 million options, estimated by an appropriate option pricing model, is $5.18 per option. 3,680,000 options were forfeited when an executive resigned in 2010. ...

Solution Summary

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