Question

1. Ajax Corporation has granted its top five executives 100,000 stock options each on January 1^st. The strike price of the options is equal to the stock price on the day of the grant. The options vest in two years. At the end of the first year, what should Ajax do to account for these granted stock options?

Question 1 options:

Record a debit to Compensation Expense equal to one half of the value of the stock options.

Record both a debit to Compensation Expense, and a credit to a liability account Stock Options Payable,equal to one half of the value of the stock option

Do nothing; no cash has changed hands.

Record a credit to a liability account Stock Options Payable equal to one half of the total value of the stock options.

2. Which of the following has no effect on retained earnings?

Question 2 options:

	A stock split.
	A property dividend.
	A cash dividend.
	A stock dividend.
	All of these have an effect on retained earnings.

3.

Ajax Enterprises had 220,000 shares of common stock issued and outstanding at December 31, 2025. Unexercised stock options to purchase 40,000 shares of common stock at $20 per share were outstanding at the beginning and end of 2026. The market price of Glendale's common stock was $25 per share during 2026. Net income for the year ended December 31, 2026, was $1,100,000. What should be Ajax's 2026 diluted earnings per common share, rounded to the nearest penny?

Question 4 options:

	$4.23
	$5.00
	$5.05
	$4.82

Answer 1

Answer to question 1- second option

I.e record both a debit to compensation expense and a credit to liability account stock option payable, equal to the one half of the value of the stock option

Answer to question 2- fifth option

I.e all of these have an effect on retained earnings. Note that retained earnings decrease when any type of dividend is declared.

Answer to question 3- fourth option

Diluted EPS=$1,100,000/ 220000+40000-((40000*20)/25)

=$1,100,000/ 220000+40000-32000

=$1,100,000/ 228000= 4.82