ACC 2020 Module 5 Stock Options, EPS and Accounting Changes Assignment Example

Reviewed by Edgar Pennington, MBA Thomas Edison State University Updated October 2026

This ACC 2020 Module 5 example expenses a manager stock option grant, builds basic and diluted earnings per share and sorts three reporting corrections for Intermediate Accounting II. In TESU's Bachelor of Science in Business Administration, this ACC-2020 module is where intermediate accounting turns to per-share reporting. Barnegat Marine Supply, Inc., the fictional marine parts company from the earlier sets, provides the share counts and the options. Part A measures a 2025 stock option grant and spreads its cost over the vesting period. The share issue and buybacks recorded in Module 4 then become a weighted share count for both earnings per share figures. Part C classifies and records three changes: a revised useful life, a switch from average cost to FIFO and depreciation omitted in 2024.

CourseACC-2020 Intermediate Accounting II
ModuleModule 5
Paper typeWritten Assignment 5: option cost, per-share earnings and fixing past reports
LengthAbout 669 words, 5 pages
FormatAPA 7 student paper
SchoolThomas Edison State University
ProgramBachelor of Science in Business Administration
UpdatedOctober 2026

Free sample paper for ACC 2020 Module 5

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Barnegat Marine Supply, Inc.: Option Expense, Basic and Diluted EPS, and Three Kinds of Accounting Change

Student Name

Bachelor of Science in Business Administration, Thomas Edison State University

ACC-2020: Intermediate Accounting II

Mentor Name

Month Day, Year

What this page is doingThe title previews the chain of the assignment: options create compensation cost, then potential shares in diluted EPS, and the changes section closes the module.
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Barnegat Marine Supply, Inc.: Option Expense, Basic and Diluted EPS, and Three Kinds of Accounting Change

Introduction

Barnegat's net income for 2025 was $316,000, its pretax income of $400,000 less tax expense of $84,000 from Module 2. Its share count moved during the year, and it granted stock options to managers. This assignment measures the options, computes earnings per share and corrects how some past figures were reported.

Part A: Share-Based Compensation

On January 1, 2025, Barnegat granted 24,000 options to managers, each allowing the purchase of one common share at $24, the market price on that date. Managers must stay through the end of 2027 for the options to vest. An option pricing model valued each option at $6 on the grant date.

Each year Barnegat debits Compensation Expense and credits Paid-in Capital, Stock Options, for $48,000. Fair value is fixed at the grant date; later movements in the share price do not change the expense (Spiceland et al., 2020). Restricted stock is measured the same way, at the share price on the grant date. If managers leave before vesting, Barnegat may account for forfeitures as they occur, reversing expense previously recognized. Aboody et al. (2004) found that investors treated option expense as a real cost even before recognition was required, which supported the decision to put it on the income statement.

MeasurementAmount
Total compensation cost: 24,000 x $6$144,000
Annual expense over three years of service48,000
Unrecognized cost at December 31, 202596,000

Part B: Earnings Per Share

Weighted-average common shares reflect the Module 4 transactions:

Preferred dividends of $30,000 belong to preferred shareholders, so income available to common shareholders is $316,000 minus $30,000, or $286,000. Basic EPS is $286,000 / 205,875 = $1.39.

For diluted EPS, the options are potential common shares. Under the treasury stock method, Barnegat assumes they were exercised and the proceeds used to buy back shares at the average market price of $32. Proceeds include the exercise price and the unrecognized compensation cost: 24,000 x $24 = $576,000, plus $96,000, totals $672,000, which buys back 21,000 shares. The options add 3,000 net shares, and diluted EPS is $286,000 / 208,875 = $1.37. The options are dilutive because they lower EPS; had the exercise price been above the average market price, they would be excluded as antidilutive.

EventSharesFraction of yearWeighted shares
Outstanding January 1200,00012/12200,000
Issued April 110,0009/127,500
Treasury purchase July 1(4,000)6/12(2,000)
Treasury reissue October 11,5003/12375
Weighted average207,500 at year endFull year205,875
What this page is doingLaying out the treasury stock method in sentences with each figure shows the assumed exercise and buyback, the step graders check most closely in diluted EPS.
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Part C: Accounting Changes and Error Corrections

1. Change in estimate. Delivery equipment costing $300,000 was being depreciated over ten years with no residual value; after four years, $120,000 is accumulated. In 2025 management revises the total life to eight years and expects a $20,000 residual value. The change is applied prospectively: ($300,000 minus $120,000 minus $20,000) / 4 remaining years = $40,000 a year. Prior years are not restated.

2. Change in accounting principle. Barnegat switches inventory from weighted average to FIFO because FIFO better matches the flow of its perishable rubber parts. The change is applied retrospectively: prior years are presented as if FIFO had always been used, and beginning 2025 retained earnings is adjusted for the cumulative effect. Inventory at January 1, 2025 is $18,000 higher under FIFO, so retained earnings increases by $18,000 x (1 minus 0.21) = $14,220, with a deferred tax liability of $3,780. The notes must explain why FIFO is preferable.

3. Error correction. Depreciation of $40,000 was omitted in 2024. This is a prior period adjustment: beginning 2025 retained earnings is reduced by $40,000 x 0.79 = $31,600, accumulated depreciation is increased by $40,000 and the tax effect of $8,400 is recorded. The 2024 statements are restated when presented for comparison. Hennes et al. (2008) showed that restatements caused by intentional irregularities, unlike honest errors, were followed by far higher executive turnover, which is why the notes should describe the nature of an error.

What this page is doingEach change is classified before it is computed, because the classification decides whether prior years change at all.
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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

Hennes, K. M., Leone, A. J., & Miller, B. P. (2008). The importance of distinguishing errors from irregularities in restatement research: The case of restatements and CEO/CFO turnover. The Accounting Review, 83(6), 1487-1519. https://doi.org/10.2308/accr.2008.83.6.1487

Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2020). Intermediate accounting (10th ed.). McGraw-Hill Education.

Reading the ACC 2020 Module 5 assignment instructions

The fifth module groups four topics that share a theme of what reported earnings mean: stock-based pay, per-share figures, changed methods and corrected mistakes, and its homework set touches each. The set's numbered items span three chapters, and each calculation, especially the share weighting, must be written out. Expect items that measure option and restricted stock compensation, compute weighted-average shares with issues, buybacks, stock dividends and splits, calculate basic and diluted EPS with options, convertible securities and preferred dividends, and classify and record changes in estimate, changes in principle and corrections of errors. The problems here are original and set in the same style. Some versions also ask for a disclosure note describing a change in principle and its effect on each line item.

How the ACC 2020 Module 5 example is put together

Part A measures the option grant in a short table and explains the entry, the fixed grant-date value and forfeitures. Part B builds weighted-average shares in a table from the equity transactions recorded in the previous assignment, so the two assignments agree, then computes basic EPS and walks through the treasury stock method for diluted EPS, including unrecognized compensation in the assumed proceeds and the antidilution test. Part C classifies each of three changes first, then computes and records it, stating whether prior years are restated. Two research findings explain why option expense and the nature of restatements matter to users. Every figure in the EPS calculation can be traced to a transaction recorded earlier in the course.

Where the marks sit in the ACC 2020 Module 5 rubric

This assignment shares in the 33 percent of the ACC-2020 grade carried by the written assignments, and mentors grade it for correct answers with complete work. They check that compensation cost uses grant-date fair value spread over the service period, that weighted-average shares are time-weighted correctly, that preferred dividends are subtracted before basic EPS, that the treasury stock method uses the average market price and includes unrecognized cost and that antidilutive securities are excluded. For changes, they look for correct classification and treatment: prospective for estimates, retrospective for principles and restatement for errors, each net of tax where required. Showing the antidilution test in writing, even when a security clearly dilutes, also earns credit.

Common ACC 2020 Module 5 mistakes, and how to avoid them

EPS problems trip students up when they weight shares from the wrong dates or forget to restate for stock dividends and splits retroactively. Subtract preferred dividends on cumulative preferred stock whether or not they were declared. In the treasury stock method, use the average market price, not the year-end price. For accounting changes, classify before computing: a new useful life is an estimate, a new inventory method is a principle, and a mistake is an error. Remember the tax effect in retained earnings adjustments. A writer can run your assigned EPS and accounting change problems through these steps; the first one is free. Write each share event on a timeline before weighting it.

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ACC 2020 Module 5 questions, answered

Where can I find a free ACC 2020 Module 5 sample paper?

Module 5 is solved here from start to finish: stock option expense, weighted shares, basic and diluted EPS with the treasury stock method and three accounting changes.

How is stock option expense measured?

At the options' fair value on the grant date, recognized evenly over the vesting period as compensation expense.

How does the treasury stock method work for diluted EPS?

Pretend holders exercise, pretend the company spends the cash plus any compensation cost not yet expensed on its own shares at the year's average price, and add only the leftover shares to the count.

How is a change in accounting estimate reported?

Prospectively, in the current and future periods, without restating prior years.

How is an accounting error corrected?

As a prior period adjustment to beginning retained earnings, net of tax, with prior statements restated when presented.