xxxii CONTENTS 4 Additional Financial Reporting Issues 19 C H A P T E R Share-Based Compensation and Earnings Per Share 1126 Part A: Share-Based Compensation 1127 Restricted Stock Plans 1128 Restricted Stock Awards 1130 Restricted Stock Units 1130 Stock Option Plans 1130 Expense—The Great Debate 1130 Recognizing the Fair Value of Options 1131 When Options are Exercised 1133 When Unexercised Options Expire 1134 Plans with Graded Vesting 1136 Plans with Performance or Market Conditions 1136 Employee Share Purchase Plans 1139 Decision Makers’ Perspective 1139 Concept Review Exercise: Share-Based Compensation Plans 1140 Part B: Earnings Per Share 1141 Basic Earnings Per Share 1142 Issuance of New Shares 1142 Stock Dividends and Stock Splits 1143 Reacquired Shares 1144 Earnings Available to Common Shareholders 1145 Diluted Earnings Per Share 1146 Potential Common Shares 1146 Options, Rights, and Warrants 1146 Convertible Securities 1147 Antidilutive Securities 1151 Options, Warrants, Rights 1151 Convertible Securities 1152 Order of Entry for Multiple Convertible Securities 1153 Concept Review Exercise: Basic and Diluted EPS 1154 Additional EPS Issues 1155 Components of the “Proceeds” in the Treasury Stock Method 1155 Contingently Issuable Shares 1157 Summary of the Effect of Potential Common Shares on Earnings Per Share 1158 Actual Conversions 1159 Financial Statement Presentation of Earnings Per Share Data 1159 Decision Makers’ Perspective 1161 Concept Review Exercise: Additional EPS Issues 1162 Appendix 19A: Option-Pricing Theory 1165 Appendix 19B: Stock Appreciation Rights 1167 20 C H A P T E R Accounting Changes and Error Corrections 1194 Part A: Accounting Changes 1196 Change in Accounting Principle 1197 Decision Makers’ Perspective—Motivation for Accounting Choices 1197 The Retrospective Approach: Most Changes in Accounting Principle 1198 The Prospective Approach 1202 Change in Accounting Estimate 1205 Changing Depreciation, Amortization, and Depletion Methods 1206 Change in Reporting Entity 1207 Error Correction 1208 Concept Review Exercise: Accounting Changes 1209 Part B: Correction of Accounting Errors 1210 Prior Period Adjustments 1210 Error Correction Illustrated 1212 Error Discovered in the Same Reporting Period That It Occurred 1212 Error Affecting Previous Financial Statements, but Not Net Income 1212 Error Affecting a Prior Year’s Net Income 1213 Concept Review Exercise: Correction of Errors 1217 Stock Dividends and Splits 1091 Stock Dividends 1091 Stock Splits 1093 Stock Splits Effected in the Form of Stock Dividends (Large Stock Dividends) 1094 Decision Maker’s Perspective 1095 Concept Review Exercise: Changes in Retained Earnings 1097 Appendix 18: Quasi Reorganizations 1100
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