【正文】 ncing rights to purchase additional shares of stock, the directors of a corporation specify a date on which the rights will be issued. ? All stockholders of record are entitled to the rights. Thus, between the announcement date and the issue date, the stock is said to sell rightson. (continues) 1335 Stock Rights ? After the rights are issued, the stock sells exrights, and the rights may be sold separately by those receiving them from the corporation. 1336 Stock Warrants ? Detachable warrants are similar to stock rights because they can be traded separately from the security with which they were originally issued. ? Nondetachable warrants cannot be separated from the security with which they were issued. 1337 Stock Warrants Stewart Co. sells 1,000 shares of $50 par preferred stock for $58 per share. Stewart Co. gives the purchaser detachable warrants enabling the holders to subscribe to 1,000 shares of $2 par mon stock for $25 per share. Immediately following the issuance of the stock, the warrants are selling for $3, and the fair market value of a preferred share without the warrant attached is $57. 1338 Stock Warrants Value assigned to warrants = Total issue price x Market value of warrants Market value of security without warrants + Market value of warrants $57 + $3 Value assigned to warrants = $58,000 x $3 = $2,900 1339 Stock Warrants The entry on Stewart’s books to record the sale of the preferred stock with detachable warrants is: Cash 58,000 Preferred Stock, $50 par 50,000 PaidIn Capital in Excess of Par— Preferred Stock 5,100 Common Stock Warrants (from Slide 1338) 2,900 1340 Stock Warrants If the warrants are exercised: Common Stock Warrants 2,900 Cash 25,000 Common Stock, $2 par 2,000 PaidIn Capital in Excess of Par— Common Stock 25,900 If the warrants expire: Common Stock Warrants 2,900 PaidIn Capital from Expired Warrants 2,900 1341 The pany estimates a grant date value of $10 for each of the employee stock options. The total fair value of the options granted is $100,000. Compensation expense is allocated over three years from January 1, 2020 (the grant date) to January 1, 2020 (the vesting date). The yearend entry is as follows: $100,000/3 Dec. 31 Compensation Expense 33,333 PaidIn Capital from Stock Options 33,333 2020 ShareBased Compensation 1342 On December 31, 2020, all 10,000 of the options are exercised to purchase Neff’s nopar mon stock: Dec. 31 Cash (10,000 x $50) 500,000 PaidIn Capital from Stock Options 100,000 Common Stock (no par) 600,000 2020 If the options are allowed to expire unexercised: Dec. 31 PaidIn Capital from Stock Options 100,000 PaidIn Capital from Expired Options 100,000 2020 ShareBased Compensation 1343 Accounting for PerformanceBased Plans In a performancebased stock option plan, the plan terms are dependent on how well the individual or pany performs after the date the options are granted. 1344 Accounting for PerformanceBased Plans ? On January 1, 2020, the board of directors of Neff Company authorized the granting of stock options to supplement the salaries of certain employees. ? Each stock option permits the purchase of one share of Neff mon stock at a price of $50 per share。 Dec. 31, 2020, $59 1347 Accounting for PerformanceBased Plans Recognition of pensation of $40,000 for each of the three years [(12,000 options $10)/3]: Dec. 31 Compensation Expense 40,000 PaidIn Capital from Stock Options 40,000 2020 Sales are expected to be only $40 million, so only 10,000 options will vest on January 1, 2020: Dec. 31 Compensation Expense ($66,667 – $40,000) 26,667 PaidIn Capital from Stock Options 26,667 2020 (continues) 1348 Accounting for PerformanceBased Plans Actual sales for 2020 are $85 million, so 15,000 options will vest on January 1, 2020: Dec. 31 Compensation Expense ($150,000 – $66,667) 83,333 PaidIn Capital from Stock Options 83,333 2020 On December 31, 2020, all 15,000 options are exercised to purchase Neff’s nopar mon stock: Dec. 31 Cash ($15,000 $50) 750,000 PaidIn Capital from Stock Options 150,000 Common Stock (no par) 900,000 2020 1349 Accounting for Awards That Call for Cash Settlement ? Assume that Neff Company has decided instead of granting its employees 10,000 stock options, it will grant an equal number of cash stock appreciation rights (SARs). ? A cash SAR awards an employee a cash amount equal to the market value of the issuing firm’s shares above a specified threshold price. 1350 Neff Company Example ? Neff’s share price: – January 1, 2020 $50 – December 31, 2020 56 – December 31, 2020 57 – December 31, 2020 59 – December 31, 2020 61 ? As of December 31, 2020, the $56 is used as the best estimate for the cash SARs. The amount of cash involved will be $60,000 [10,000 ($56 – $50)]. (continues) 1351 Neff Company Example Dec. 31 Compensation Expense 20,000 ShareBased Compensation