Problem:
Impact of Transactions on Financial Statement Elements
Identify the specific effects (including account name, dollar amount, and financial statement impact) of the following transactions or conditions on the various financial statement components:
I = Increase D = Decrease NE = No effect
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Transaction
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Assets
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Liabilities
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Equity
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A convertible bond is issued at a premium.
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Amortization of a discount on a convertible bond at an interest date.
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Conversion of a convertible bond (originally issued at par) to common stock. The carrying value of the bond is greater than the par value of the common stock.
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Conversion of preferred stock to common stock. Assume the preferred stock was issued over par value and its net carrying value is greater than the par value of the common stock.
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Financial Statement Analysis:
Proctor & Gamble offers a variety of stock-based compensation plans to its executives. Refer to P&G's 2012 annual report to answer the following questions related to stock-based compensation, dilutive securities, and earnings per share. The 2012 annual report of Proctor & Gamble can be found on Blackboard. P&G's fiscal year end is June 30.
Used report found here:
https://www.pg.com/en_US/investors/financial_reporting/annual_reports.shtml
Earnings Per Share
1. What was the % per-share decrease in basic EPS from 2011 to 2012? Round to the nearest whole percent.
2. The Income Statement reports 2012 diluted EPS as $3.66. What types of securities are causing the dilution?
3. How many stock options were not included in the diluted EPS calculation because they were anti-dilutive?
Stock-Based Compensation:
1. How does P&G determine the exercise price for its stock options?
2. What are the terms of the following stock options (e.g. period of benefit and exercisable time frame)?
a. Key manager stock option awards (since Sept 2002).
b. Key manager restricted stock units.
c. Senior level executive performance stock units.
3. How much stock-based compensation expense/cost did P&G recognize in 2012 for all of its stock-based compensation plans? NOTE: ignore related tax benefits. What percentage is this of total after-tax net income for the year (round to one decimal place)?
4. How much compensation expense related to stock option grants remains to be recognized as of 6/30/12?
5. What model does P&G use to measure the fair value (compensation expense) of its stock options? List two assumptions used in that model.
6. How does P&G estimate the number of options that will be exercised and employee termination patterns for purposes of the valuation model?
7. How many shares of stock related to P&G's stock compensation plans are exercisable at 6/30/12?
8. What is the weighted-average exercise price of those exercisable shares?