| Course | ACC 620 Financial Reporting II |
|---|---|
| Module | Module 6 |
| Paper type | graduate milestone on share-based payment and earnings per share |
| Length | About 1,010 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 620 Module 6
Share-Based Compensation and Earnings per Share for 2025
[Student Name]
Southern New Hampshire University
ACC 620: Financial Reporting II
Milestone Two
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Share-Based Compensation and Earnings per Share for 2025
Introduction
The carrier's compensation committee shifted executive pay from options to full-value awards in 2022. In 2025 it granted restricted stock units and two kinds of performance shares, and older options remain outstanding. The carrier also issued $150 million of 2 percent convertible senior notes in 2023 to fund trailer purchases. This milestone measures the 2025 compensation cost under ASC 718 and computes basic and diluted earnings per share under ASC 260 (Kieso et al., 2019).
Restricted Stock Units
On January 2, 2025, the carrier granted 300,000 restricted stock units vesting at the end of three years of service. The share price that day was $42.00, and units earn dividend equivalents, so grant-date fair value is the full price, $12.6 million. Expense is recognized straight-line over the three-year service period, $4.2 million a year. The carrier's policy is to account for forfeitures as they occur, so expense is reversed only when an employee leaves before vesting; none did in 2025, so the full $4.2 million is recognized.
Performance Shares
The committee granted two performance awards. The first, 120,000 target shares, pays out from 0 to 200 percent of target based on the carrier's cumulative operating ratio over 2025 through 2027. The operating ratio is an internal measure, so this is a performance condition. Under ASC 718-10-25-20, expense is recognized based on the probable outcome and adjusted as the estimate changes. After a strong first year, management judges 150 percent probable, so the award is valued at 180,000 shares times $42, $7.56 million, and one third, $2.52 million, is recognized in 2025. If the probable outcome falls, cumulative expense will be reduced.
The second, 60,000 shares, vests only if the carrier's three-year total shareholder return ranks in the top half of a peer group of 14 truckload carriers. Shareholder return is a market condition, so its effect is built into the grant-date fair value through a Monte Carlo simulation of the carrier's and peers' share prices. The simulation gave $46.20 per share, above the share price because the payout scale rewards high rankings. Expense is $2.772 million over three years, $924,000 in 2025, and will not be reversed even if the ranking target is missed, provided the executives stay employed (ASC 718-10-30-14). Aboody et al. (2004) found that investors treat stock compensation expense as a real cost when valuing firms, which supports recognizing it even when the award never pays out.
Share-based compensation expense, 2025, in thousands
| Award | Grant-date value | 2025 expense |
|---|---|---|
| Restricted stock units | $12,600 | $4,200 |
| Operating ratio performance shares, 150 percent probable | $7,560 | $2,520 |
| Relative return shares | $2,772 | $924 |
| Options granted before 2022, final vesting | n/a | $550 |
| Total | $8,194 |
Basic Earnings per Share
Net income for 2025 is $35.8 million after the $14.2 million tax provision computed in Milestone One. The carrier has no preferred stock. Weighted-average common shares outstanding were 40.0 million. Basic EPS is $35.8 million divided by 40.0 million, $0.895, reported as $0.90.
Diluted Earnings per Share
ASC 260-10-45-18 requires including dilutive potential shares in order from most to least dilutive, so each is ranked by its incremental earnings per share.
Options: 1.2 million options are outstanding at a weighted exercise price of $31 and the average 2025 share price was $44, so they are in the money. Under the treasury stock method, assumed proceeds include the exercise price, $37.2 million, plus $1.1 million of unrecognized compensation, $38.3 million, which would buy back 870,455 shares at $44. The incremental shares are 329,545, with no effect on the numerator.
Unvested restricted stock units add about 95,000 shares under the same method. Performance shares are contingently issuable; under ASC 260-10-45-48, the shares included are those that would be issued if the end of the reporting period were the end of the contingency period, 110,000 for the operating ratio award and none for the relative return award, whose ranking at year end was below the median.
Convertible notes: after ASU 2020-06 the if-converted method is required (Financial Accounting Standards Board, 2020). The notes convert at 22 shares per $1,000, 3.3 million shares. The numerator adds back after-tax interest, $3.0 million of coupon and $600,000 of issuance cost amortization, $3.6 million, less 25 percent tax, $2.7 million. Incremental EPS is $2.7 million divided by 3.3 million shares, $0.82, below basic EPS, so the notes are dilutive.
Diluted EPS computation
| Item | Numerator | Shares |
|---|---|---|
| Basic | $35,800,000 | 40,000,000 |
| Options, treasury stock method | 0 | 329,545 |
| Restricted stock units | 0 | 95,000 |
| Performance shares, contingently issuable | 0 | 110,000 |
| Convertible notes, if-converted | 2,700,000 | 3,300,000 |
| Diluted | $38,500,000 | 43,834,545 |
| Diluted EPS | $0.88 |
Tax Effects of the Awards
Compensation cost on equity awards creates a deferred tax asset as it is recognized, because the deduction comes later, when awards vest or options are exercised, and is measured by the share price then. In 2025 the carrier recorded deferred tax benefits of about $2 million on the $8.19 million of expense. When awards vest at a price above grant-date value, the excess deduction is an excess tax benefit, which ASU 2016-09 requires in income tax expense rather than paid-in capital. Vesting of the 2022 restricted stock units at $44 against a $35 grant-date price produced the $350,000 excess benefit shown in Milestone One's rate reconciliation. This makes the effective rate partly a function of the share price, a point the notes should make.
Sensitivity
If management lowered the probable payout on the operating ratio award from 150 to 100 percent, cumulative expense would drop by $840,000 in the quarter of the change, and diluted shares would also fall. A higher average share price would add option shares under the treasury stock method; at $50, the options would add about 434,000 shares, still leaving diluted EPS at $0.88.
Conclusion
Diluted EPS of $0.88 is two cents below basic, most of the gap from the convertible notes. The key judgments are the probable payout on the operating ratio award and the Monte Carlo inputs. The notes should disclose award activity, the valuation assumptions, unrecognized cost and its expected recognition period, and a reconciliation of basic and diluted share counts with any antidilutive securities excluded.
References
Aboody, D., Barth, M. E., & Kasznik, R. (2004). SFAS No. 123 stock-based compensation expense and equity market values. The Accounting Review, 79(2), 251-275. https://doi.org/10.2308/accr.2004.79.2.251
Financial Accounting Standards Board. (2020). Debt: Debt with conversion and other options (Subtopic 470-20) and derivatives and hedging: Contracts in entity's own equity (Subtopic 815-40): Accounting for convertible instruments and contracts in an entity's own equity (Accounting Standards Update No. 2020-06). Author.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 620 Module 6 instructions ask for
The second ACC 620 milestone usually asks you to account for a case company's share-based awards and compute its earnings per share. Plan to measure each award at grant-date fair value under ASC 718, recognize expense over the requisite service period, and explain how performance and market conditions affect recognition. Then compute basic EPS and diluted EPS under ASC 260, applying the treasury stock method to options and unvested shares, the contingently issuable share rules to performance awards and the if-converted method to convertible debt, testing each for antidilution. Show the calculations in schedules and explain the judgments, such as the probable performance outcome, and the tax effects of the awards.
How this ACC 620 Module 6 milestone two example is built
The milestone measures three award types. Restricted stock units of 300,000 shares at a $42 grant-date price produce $4.2 million of expense a year over three years. Performance shares tied to the operating ratio are expensed at the probable 150 percent payout, $2.52 million for 2025. Shares tied to relative shareholder return are valued at $46.20 by Monte Carlo simulation and expensed regardless of the outcome, $924,000. For EPS, net income of $35.8 million over 40 million weighted shares gives basic EPS of $0.90. Options add 329,545 shares under the treasury stock method, and the convertible notes add 3.3 million shares and $2.7 million of after-tax interest, giving diluted EPS of $0.88. The paper also traces the awards' tax effects into the provision.
Where the ACC 620 Module 6 rubric puts the points
Rubrics for the second ACC 620 milestone typically score award measurement, the expense schedule, treatment of performance and market conditions, the basic EPS calculation, each dilutive security, antidilution testing and Codification support. The strongest milestones explain why a market condition is reflected in grant-date value rather than in later expense adjustments, include unrecognized compensation in treasury stock method proceeds and apply the if-converted method required after ASU 2020-06. Graders also reward correct sequencing of dilutive securities and a clear account of the deferred tax asset on awards. Common deductions include remeasuring equity awards at year-end price, reversing expense when a market condition fails, using the old net share settlement method for convertibles and omitting contingently issuable shares.
ACC 620 Module 6 help: the mistakes that cost points
Milestone Two papers most often slip on the difference between performance and market conditions: expense for a performance condition follows the probable outcome and can reverse, while expense for a market condition is fixed at grant-date fair value once service is rendered. A second weak spot is the convertible after ASU 2020-06, where students still use the treasury stock method. If your case includes liability-classified awards or employee stock purchase plans, the same measurement steps apply with remeasurement for liabilities. Rank each dilutive security by its incremental earnings per share before computing the diluted figure; including them in order prevents an antidilutive item from slipping in. Then confirm that diluted EPS is not higher than basic.
Get ACC 620 Module 6 written to your instructions
Send the ACC 620 Milestone Two guidelines and the award and capital data. The milestone will measure each award, schedule the expense, and compute basic and diluted EPS with every dilution test shown and supported by the Codification. Your first sample is free and generally arrives in two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 620 Module 6 questions, answered
Where can I find a free ACC 620 Module 6 Milestone Two sample?
This page includes a full ACC 620 Milestone Two measuring stock compensation and computing basic and diluted EPS for a trucking carrier.
How is a restricted stock unit measured under ASC 718?
At grant-date fair value, usually the share price on the grant date adjusted for any dividends not received during vesting, and recognized over the requisite service period.
What is the difference between a performance condition and a market condition?
A performance condition depends on the company's own operations, such as earnings or operating ratio, and expense follows the probable outcome; a market condition depends on share price or return and is reflected in grant-date fair value, with no reversal if it is not met.
How did ASU 2020-06 change diluted EPS for convertible debt?
It requires the if-converted method for convertible instruments and removed the treasury stock method that some entities used for instruments that could be settled in cash.
Why are unrecognized compensation costs included in treasury stock method proceeds?
Because ASC 260 treats future service yet to be rendered as part of the consideration employees pay for the shares, which reduces the incremental shares.