Question #8
Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based
PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf
Page: 3
Status: Correct
Correct Answer: A
Question
The number of potentially dilutive securities for the stock grant at the end of 20X1 is closest to:
Answer Choices:
A. 25,000
B. 16,667
C. 21,078
Explanation
Cash proceeds = $0.
Unrecognized compensation expense at the beginning of the year = 0 (plan just started)
Unrecognized compensation expense at the end of the first year = 400,000 – 133,333 =
$266,667
Average unrecognized share-based compensation expense = (266,667 + 0)/2 = 133,333
Assumed proceeds = 0 + 133,333 = 66,667
Number of treasury shares = assumed proceeds / average share price during the reporting
period.
= 66,667 / 17 = 3,921 shares
Dilutive shares = 25,000 – 3,922 = 21,078 shares