Today's question: FAR

On January 2, 2006, Morey Corp. granted Dean, its president, 20,000 stock appreciation rights. On exercise, Dean is entitled to receive cash for the excess of the stock's market price on the exercise date over the market price on the grant date. The rights are exercisable beginning on January 2, 2008 and expiring on December 31, 2008. The market price of Morey's stock was $30 on January 2, 2006 and $45 on December 31, 2006. Morey used the Black-Sholes-Merton pricing model and estimated the values of each right at $16 each. As a result of the stock appreciation rights, the company should recognize compensation expense for 2006 of:

A) $300,000

B) $320,000

C) $150,000

D) $160,000

Correct Answer: D

Explanation: The service period is the period from the grant date, January 2, 2006, to the exercise date, January 2, 2008, or two years. Therefore, the total compensation of $320,000 (20,000 SARS X the estimated fair value of $16 each) divided by two years equals the compensation expense of $160,000 each year.

Today's question: BEC

Starrs Company has current assets of $300,000 and current liabilities of $200,000. Which of the following options could increase Starrs working capital?

A)   Prepayment of $50,000 of next year's rent.

B)   Refinancing of $50,000 of short-term debt with long-term debt.

C)   Acquisition of land valued at $50,000 through the issuance of common stock.

D)   Purchase of $50,000 of temporary investments for cash.