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Equity Compensation > WWP230H > Flashcards

WWP230H Flashcards

1
Q

Option Price

A
  • For stock options, it is the predetermined price at which the employee can purchase a certain number of shares of company stock within a specified period of time.
  • Sometimes referred to as grant price or strike price
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2
Q

Fair Value

A

-The amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

-Fair value is the basis for GAAP accounting for the awards.

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3
Q

How is the FV for Stock Options calculated at JNJ?

A

By using the Black -Scholes method.

Essentially, this method uses assumptions in the following 5 areas to determine the fair value of stock options:
[1] volatility
[2] Risk-free interest rate
[3] dividend yield
[4] expected term
[5] stock price at date of grant.

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4
Q

What is the Fair Value for RSUs at JNJ and how is it calculated?

A

-The fair value for RSUs is closing stock price on the NYSE on the date of grant, discounted to reflect the fact that there is no dividend yield during the vesting period.

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5
Q

How is the FV for PSUs calculated at JNJ?

A
  • The fair value for PSUs is calculated using the Monte Carlo Method.
  • It is based on the performance and market conditions of the award.
  • Fair value for the performance conditions is the average of the high and low of the stock price on the date of grant, discounted to reflect that there is no dividend yield during the vesting period.
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6
Q

Forfeiture

A

Represents an award that will not vest because the employee ceased to render services prior to the end of the vesting period.

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7
Q

Grant date

A
  • The date at which an employer and an employee have a mutual understanding of the terms of a stock -based compensation award.
  • The employer becomes contingently obligated on the grant date to issue equity instruments to employees who fulfill vesting requirements.
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8
Q

Intrinsic value

A

The difference between the market price of a stock and the exercise price of an option.

For example:
Current market price of a stock $25 - $20 exercise price of option = $5 intrinsic value

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9
Q

Measurement date

A

The date at which the FAIR VALUE of awards is MEASURED, which is the same day as the grant date.

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10
Q

What are Performance Share Units [PSUs]?

A
  • PSUs represent an arrangement where the Company promises to grant shares of J&J stock to an employee (subject to vesting and the achievement of performance conditions, such as EPS and TSR.)
  • During the vesting period, PSU’s do not consist of legally issued shares, do not give the holder voting rights, and do not yield dividends.
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11
Q

What are Restricted share units [RSUs]?

A
  • RSUs represent an arrangement whereby the Company promises to grant shares of J&J stock to an employee, subject to vesting conditions.
  • During the vesting period, RSUs are not legally issued shares, and therefore do not give the holder voting rights and do not yield dividends
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12
Q

Service period

A
  • The period or periods during which the employee performs services in exchange for awards.
  • The service period is presumed to be the vesting period but would be shorter in case of retirement eligibility.
  • This is sometimes referred to as the requisite service period.
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13
Q

SPEC

A

Savings Plan and Equity Compensation Department

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14
Q

Stock option

A

A contract that gives the holder the right, but not the obligation, to purchase certain number of shares of
company stock at a predetermined price for a specified period of time. The predetermined price is the Fair Market Value at the date of grant. The specified period of time starts after the vesting period and ends no later than 10 years after the grant date.

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15
Q

Vesting period

A

Represents the period during which the employee cannot obtain the benefit from the award. In general,
the vesting period for Johnson & Johnson awards is 3 years, with some exceptions.

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16
Q

Windfall [or Shortfall]

A

The extent to which the tax impact of 1) the exercise of a stock option or 2) the ending of the vesting period of a PSU or RSU differs from the deferred tax asset that was set up during the vesting period.

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17
Q

share-based compensation award

A

is compensation provided in the form of an equity instrument to an employee in exchange for his/her services.

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18
Q

How are awards expensed?

A

Over the service (vesting) period.

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19
Q

What are the objectives of accounting for equity instruments granted to employees?

A

[1] Measure the cost of the employee services received [e.g., compensation cost] in exchange for an award on the grant date and
[2] Recognize that measured compensation cost in the financial statements over the requisite service (vesting) period.

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20
Q

How are share based awards classified?

A

As either ‘equity’ or ‘liability’ based on the terms of the share - based payment instrument.

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21
Q

How is compensation exp recorded?

A

Comp Exp is recorded as a debit (expense) to the income statement over the requisite service period.

-If the award is classified as equity, the corresponding credit is recorded in equity — typically as APIC.
-If the award is classified as a liability, the corresponding credit is recorded as a share-based liability.

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22
Q

How are equity-classified awards generally recognized?

A

Equity-classified awards are generally recognized as compensation cost over the requisite service period based on the fair-value measure of the award on the grant date.

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23
Q

How is the fair-value of liability-classified awards generally recognized?

A

The FV of Liability-Classified awards are gennerally recognized by remeasuring in each reporting period until settlement (mark-to-market). That is, the changes in the fair-value-based measurement of the liability at the end of each reporting period are recognized as compensation cost, either immediately or over the remaining service period, depending on the vested status of the award.

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24
Q

Requisite Service Period

A

The period or periods during which an employee is required to provide service in exchange for an award under a share-based payment arrangement. The service that an employee is required to render during that period is referred to as the requisite service. The requisite service period for an award that has only a service condition is presumed to be the vesting period, unless there is clear evidence to the contrary. If an award requires future service for vesting, the entity cannot define a prior period as the requisite service period. Requisite service periods may be explicit, implicit, or derived, depending on the terms of the share-based payment award.

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25
Q

GAAP vs Tax Treatment of SBC

A

GAAP - expense is recognized over the awards requisite (vesting) period.
Tax - expense is taken upon the exercise of stock options or at the end of the vesting period for RSUs/PSUs.

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26
Q

What are Special Bravo Accounts used for?

A

Recording compensation expense, tax impacts, equity clearing and additional paid-in-capital impacts.

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27
Q

Tax Credit

A
  1. A tax credit is an amount of money that taxpayers can subtract, dollar for dollar, from the income taxes they owe.
  2. Tax credits are more favorable than tax deductions because they reduce the tax due, not just the amount of taxable income.
  3. There are three basic types of tax credits: nonrefundable, refundable, and partially refundable.
  4. A nonrefundable tax credit can reduce the tax you owe to zero, but it can’t provide you with a tax refund.
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28
Q

Tax Deductions

A

Tax deductions are subtracted from your taxable income, thereby lowering the amount of tax you owe.

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29
Q

Call Stock Options

A

Right to purchase a certain number of shares at predetermined price for a specified period of time.

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30
Q

Put Stock Option

A

Right to sell a certain number of shares at predetermined price for a specified period of time.

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31
Q

Deferred Tax Asset

A
  • An item on a company’s balance sheet that reduces its taxable income in the future.
  • A deferred tax asset is an item on the balance sheet that results from the overpayment or the advance payment of taxes.
  • It is the opposite of a deferred tax liability, which represents income taxes owed.
  • A deferred tax asset can arise when there are differences in tax rules and accounting rules or when there is a carryover of tax losses.
    -Beginning in 2018, most companies can carry over a deferred tax asset indefinitely.
32
Q

Deferred Tax Liability

A
  • Is a listing on a company’s balance sheet that records taxes that are owed but are not due to be paid until a future date.
    -The liability is deferred due to a difference in timing between when the tax was accrued and when it is due to be paid.
    -For instance, earning returns in a qualified retirement plan, like a 401(k), represents a deferred tax liability since the retirement saver will eventually have to pay taxes on the saved income and gains upon withdrawal.
33
Q

How and when is exp reported to the LE/MRC?

A

SBC Expense is reported to the LE/MRC combination the employee was in at the time of grant.

It is booked over the vesting period by the affiliates.

34
Q

When a employee or retired employee exercises an option or an RSU/PSU vests, what payroll location does the transaction get reported to?

A

For current employees, we report the transaction to the payroll location the person is in at the time of transaction

For retired employees, we report the transaction to their last work/payroll location.

35
Q

Process of Stock Options Awards made to employees

A
  1. Stock Options awards are approved by Senior Management and the Board in January/February annually.
  2. Stock Options awards are uploaded into Fidelity’s Plan Sponsor WebStation [PSW] portal
  3. SPEC uploads the assumptions for fair value calculation to Fidelity for Stock Options and Fidelity calculates the fair value on the grant date. For RSU’s and PSU’s, SPEC calculates the fair value and uploads them into PSW.
  4. SPEC will access the compensation expense on Fidelity PSW. This is done on a MRC basis, at the date of grant. Information is also provided on a Legal Entity basis, for tax purposes. This is done based on information in J&J HR systems
  5. The Affiliate records the compensation expense as provided by SPEC. The tax impact is also recorded by the Affiliate [Only when there is an ultimate local tax deduction upon exercise]. Equity Clearing accounts are used to transfer the compensation expense from Corporate to the Affiliate and to transfer the deferred tax asset, if any, from the Affiliate to Corporate.
36
Q

Process of SOP Awards Exercised by Employees at International Locations

A
  1. E - Int Employee exercises stock option
  2. R - Corporate Records the exercise of the option and it is documented in Fidelity PSW.
  3. a) R -Deloitte GAIN System generates the recharge reports for Globally Mobility Program Participants annually via the “Global Mobility Recharge Report”. In Q4, SPEC uses the recharge report to prepare the recharge.
  4. b) C - SPEC prepares the relevant recharge reports for local OUS participants in Q4 using the “Consolidated Tax Report”.
  5. L - SPEC sends recharge invoices to Affiliates via SAP Lynx. The affiliate pays Corporate for the charge and passes the tax benefit to corporate through equity clearing. For BRAVO/GAAP Reporting, the cost of the options exercised (i.e., intrinsic value) has no P&L impact.
  6. A - SPEC tracks invoice acceptances and provides an invoice acceptance file to International Tax for reporting.
37
Q

Process of SOP Awards Exercised by Employees at US Locations

A
  1. Employee exercises stock option after the vesting period
  2. Quarterly, Fidelity sends a Schedule M Report to the Corp Tax Department which lists the intrinsic value that is tax deductible.
  3. The Affiliates reduce their current tax liability and passes it through to Corporate via Equity Clearing.
  4. Corporate adjusts the deferred tax asset to reflect the actual tax based on the intrinsic value at the time of exercise.
38
Q

Schedule M

A

Reconciliation of income (or loss) per books with Income per tax return.
Intrinsic value that this tax deductible is reported on Schedule M.

39
Q

What is the corporate income tax form?

A

Form 1120

40
Q

Process of RSU and PSU Awards made to employees

A
  1. All awards are approved by Sr. Management and the BOD in Jan or Feb of each year.
  2. SO, RSU, and PSU awards are uploaded into Fidelity PSW.
    3.a. SPEC uploads the assumptions for the fair value calculation for stock options to PSW and Fidelity calculates the fair value.
    3.b. SPEC calculates the fair value of RSUs and PSUs and uploads the value into PSW.
  3. SPEC employees will access this report through PSW. This is done on a MRC basis, at the date of grant. Information is also provided on a Legal Entity basis for tax purposes. This is based on information from J&J HR systems.
  4. The Affiliates record the compensation exp as proved by SPEC. The tax impact is also recorded by the Affiliate (only when there is an ultimate local tax deduction upon exercise). Equity Clearing accounts are used to transfer the compensation expense from Corporate to the Affiliates and to transfer the deferred tax asset, if any, from the affiliate to corporate.
41
Q

Process of Awards (RSUs and PSUs) Issued at the End of a Vesting Period - Int Locations

A
  1. Stock is issued 1) at the end of the vesting period for RSUs or 2) after certification % is approved by BOD for PSUs.
  2. Corporate records the issuance based on the number of awards issued and it is documented in PSW.
    3.a. Annually (in Q4), Corporate invoices Affiliates for the fair market value of the awards issued to the employee’s Affiliate location. The Affiliate records the invoice and tax impact (if applicable) via the equity clearing process.
    3.b. SPEC prepares the relevant recharge reports for OUS participants annually, using the “Consolidated Tax Report” available in PSW.
  3. SPEC sends recharge invoices to Affiliates via SAP Lynx. The affiliates pay corporate for the charges and passes the tax benefit to corporate through equity clearing.
    5 . Corporate adjusts the deferred tax asset based on the actual tax benefit which is based on the market value of the awards at the end of the vesting period.
42
Q

Process of Awards (RSUs and PSUs) Issued at the End of a Vesting Period -US Locations

A
  1. Stock is issued 1) at the end of the vesting period for RSUs or 2) after certification % is approved by BOD for PSUs.
  2. Quarterly, Fidelity Sends a Schedule M Report to the Corporate Tax Department which lists the market value for the affiliates.
  3. The affiliates reduce their current tax liability and passes it through to corporate via equity clearing.
  4. Corporate adjusts the deferred tax asset based on the actual tax benefit which is based on the market value of the award at the end of the vesting period.
43
Q

What does share-based payments represent?

A

Compensation Expense.

The compensation expense is measured as the fair value of the awards issued at the date of grant.

44
Q

How is compensation expense accounted for?

A

Evenly over the service (vesting) period.

45
Q

Does compensation expense ever change once it has been booked?

A

No, once the FV and compensation expense has been determined it does not change or true’d up, even if the value of the underlying stock changes.

46
Q

Who calculates compensation expense?

A

Fidelity does (after we provide the Fair Value of awards).

47
Q

Who provides the compensation expense reports to affiliates?

A

Fidelity does on a quarterly basis.

48
Q

True or False: For reporting purposes, compensation expense related to share-based payments is a component of Management Income.

A

TRUE

49
Q

What is the general principle for awards that are expected to result in a tax deduction under existing tax law?

A

That expensing the fair value of awards will lead to deferred tax accounting as the expense is recognized over the awards requisite service (vesting) period, whereas the related tax deduction is taken upon exercise of stock options or at the end of the vesting period for RSUs and PSUs.

50
Q

Who and on what basis is accounting for tax implications done at?

A

By the Affiliates on a MRC basis.

51
Q

What is the benefit called when the resulting tax deduction exceeds the cumulative deferred tax asset that was recognized over the vesting period?

A

A “windfall”. This is the tax benefit associated with any excess deduction.

52
Q

How is a windfall treated?

A

It is recognized as an additional tax benefit on the income statement.

53
Q

What is a “shortfall”?

A

A “shortfall” is when the tax deduction is less than the cumulative compensation cost. It should be recognized on the income statement as additional income tax expense.

54
Q

Who handles the accounting for “windfalls” and “shortfalls”?

A

Corporate consolidations.

55
Q

How do you calculated the Deferred Tax Asset at the time of grant for international Affiliates?

A

Fair Value of Stock Options at time of Grant X Tax Rate = DTA

56
Q

What is the best evidence of fair value and are to be used as the basis for measurement, if available?

A

-Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measurement, if available.
-if Quoted market prices are not available, the estimate of fair value considers prices for similar assets and the results of valuation techniques to the extent available in the circumstances.

57
Q

Stock Options granted on Feb 15, 200X
100 stock options are granted to an employee at International Affiliate
Grant price: $ 60.00
Term: 10 years
Vesting period: 3 years
Fair value of each stock option at issuance: $ 15
Tax rate: 35%
Exercising the stock options
Employee decides to exercise in 200X+7
Market price of stock at exercise: $ 85

What is the Intrinsic Value of the Stock Options in this Instance?

A

Market price of stock at exercise: $ 85 - Grant price: $ 60.00 = intrinsic value of the option is $ 25

58
Q

Stock Options: International Affiliate with local tax deduction

Given the information below, what are the accounting at time of GRANT and during the VESTING PERIOD for 1) Corporate and 2) Affiliates?

Fair value of stock options at time of grant = $ 1,500
Deferred tax impact: $ 1,500 x 35% = $ 525

A

1) Corporate:
Dr Equity Clearing (366101) 1,500
Cr APIC (332200) 1,500

Dr Deferred Tax asset (115510 / 166100) 525
Cr Equity Clearing (366201) 525

2) Affiliate:
Dr Compensation Expense (657010) 1,500
Cr Equity Clearing (366101) 1,500

Dr Equity Clearing (366201) 525
Cr Income Tax expense (670122) 525

59
Q

Stock Options: International Affiliate with local tax deduction

Given the information below, what are the accounting at time of EXERCISE for Corporate and Affiliates?

Intrinsic value at time of exercise: $ 85 - $ 60 = $ 25 x 100 options = $ 2,500
Tax deduction: 35% x $ 2,500 = $ 875. This tax deduction is at the Affiliate
Cost of shares issued to employee: $ 80 x 100 = $ 8,000 [Treasury Stock]
Proceeds from employee: $ 60 x 100 = $ 6,000

A

Entry 1:
Corporate:

Dr Cash (111101) 6,000
Dr APIC (332200) 2,000
Cr Treasury Stock (380000) 8,000
[To record the proceeds of exercise and delivery of shares]

Affiliate:
No Entry

Entry 2:
Corporate:

Dr Intercompany Receivable (43xxxx) 2,500
Cr Equity Clearing (366301) 2,500
[To invoice The Affiliate the intrinsic value]
[The invoice will subsequently be paid]

Affiliate:
Dr Equity Clearing (366301) 2,500
Cr Intercompany Payable (43xxxx) 2,500
[To record Corporate’s invoice of the intrinsic value]
[The Affiliate will subsequently pay the invoice]

Entry 3:
Corporate:

Dr Equity Clearing (366401) 875
Cr Deferred Tax Asset (115510 / 166100) 525
Cr APIC [windfall] (333150) 350
[To record the tax impact of the exercise - the Deferred Tax Asset is eliminated and the difference between the actual tax benefit and the deferred tax asset is the “windfall’]

Affiliate:
Dr Income Tax Liability (215100) 875
Cr Equity Clearing (366401) 875

[To record the tax benefit of the exercise and the passing through to Corporate]

60
Q

Stock Options: International Affiliate with NO local tax deduction

Given the information below, what are the accounting at time of EXERCISE for Corporate and Affiliates?

Intrinsic value at time of exercise: $ 85 - $ 60 = $ 25 x 100 options = $ 2,500
Tax deduction: 35% x $ 2,500 = $ 875. This tax deduction is at the Affiliate
Cost of shares issued to employee: $ 80 x 100 = $ 8,000 [Treasury Stock]
Proceeds from employee: $ 60 x 100 = $ 6,000

A

Entry 1:
Corporate:

Dr Cash (111101) 6,000
Dr APIC (332200) 2,000
Cr Treasury Stock (380000) 8,000
[To record the proceeds of exercise and delivery of shares]

Affiliate:
No Entry

Entry 2:
Corporate:

Dr Intercompany Receivable (43xxxx) 2,500
Cr Equity Clearing (366301) 2,500
[To invoice The Affiliate the intrinsic value]
[The invoice will subsequently be paid]

Affiliate:
Dr Equity Clearing (366301) 2,500
Cr Intercompany Payable (43xxxx) 2,500
[To record Corporate’s invoice of the intrinsic value]
[The Affiliate will subsequently pay the invoice]

Entry 3:
Corporate:

*Dr Income Tax Liability (215100) 875
*Cr Deferred Tax Asset (115510 / 166100) 525
Cr Income Tax Expense (670122) 350
[To record the tax impact of the exercise - the Deferred Tax Asset is eliminated and the difference between the actual tax benefit and the deferred tax asset is the “windfall’]
*Depending on whether a tax deduction in the US can be taken.

Affiliate:
No entry.

61
Q

Stock Options: International Affiliate with NO local tax deduction

Given the information below, what are the accounting at time of GRANT and during the VESTING PERIOD for Corporate and Affiliates?

Fair value of stock options at time of grant = $ 1,500
Deferred tax impact: $ 1,500 x 35% = $ 525

A

Entry 1:
Corporate:
Dr Equity Clearing (366101) 1,500
Cr APIC (332200) 1,500

Affiliate:
Dr Compensation Expense (657010) 1,500
Cr Equity Clearing (366101) 1,500

Entry 2:

Corporate:
Dr Deferred Tax asset* (166100) 525
Cr Income Tax expense* (670122) 525

Affiliate:
No Entry

*Depending on whether a tax deduction can be taken in the US.
Note that this is the cumulative accounting over the vesting period.

62
Q

What is the Accounting for Employee Share-Based Compensation WWP Number?

A

230H

63
Q

Stock Options: US Affiliate WITH local tax deduction

Given the information below, what are the accounting at time of GRANT and during the VESTING PERIOD for 1) Corporate and 2) Affiliates?

Fair value of stock options at time of grant = $ 1,500
Deferred tax impact: $ 1,500 x 35% = $ 525

A

1) Corporate:
Dr Equity Clearing (366101) 1,500
Cr APIC (332200) 1,500

Dr Deferred Tax asset (166100) 525
Cr Equity Clearing (366201) 525

2) Affiliate:
Dr Compensation Expense (657010) 1,500
Cr Equity Clearing (366101) 1,500

Dr Equity Clearing (366201) 525
Cr Income Tax expense (670122) 525

64
Q

Stock Options: US Affiliate WITH local tax deduction

Given the information below, what are the accounting at time of EXERCISE for Corporate and Affiliates?

Intrinsic value at time of exercise: $ 85 - $ 60 = $ 25 x 100 options = $ 2,500
Tax deduction: 38.25% x $ 2,500 = $ 956. This tax deduction is at the Affiliate
Cost of shares issued to employee: $ 80 x 100 =
$ 8,000 [Treasury Stock]
Proceeds from employee: $ 60 x 100 = $ 6,000

A

Entry 1:
Corporate:

Dr Cash (111101) 6,000
Dr APIC (332200) 2,000
Cr Treasury Stock (380000) 8,000
[To record the proceeds of exercise and delivery of shares]

Affiliate:
No Entry

Entry 2:
Corporate:

Dr Equity Clearing (366401) 956
Cr Deferred Tax Asset (166100) 525
Cr Income Tax Expense (670122) 431
[To record the tax impact of the exercise - the Deferred Tax Asset is eliminated and the difference between the actual tax benefit and the deferred tax asset is the “windfall’]

Affiliate:
Dr Income Tax Liability (215100/215200 956
Cr Equity Clearing (366401) 956
[To record the tax benefit of the exercise and the passing through to Corporate]

65
Q

RSUs: International Affiliate with local tax deduction

Given the information below, what are the accounting at time of GRANT and during the VESTING PERIOD for 1) Corporate and 2) Affiliates?

Fair value of RSUs at time of issuance = $ 1,350
Deferred tax impact: $ 1,350 x 35% = $ 472

A

1) Corporate:
Dr Equity Clearing (366103) 1,350
Cr APIC (332200) 1,350

Dr Deferred Tax asset (115530 / 166300) 472
Cr Equity Clearing (366203) 472

2) Affiliate:
Dr Compensation Expense (657030) 1,350
Cr Equity Clearing (366103) 1,350

Dr Equity Clearing (366203) 472
Cr Income Tax expense (670122) 472

66
Q

RSUs: International Affiliate with local tax deduction

Given the information below, what are the accounting entries at the end of the VESTING period for Corporate and Affiliates?

Market price at end of vesting period: $ 70 x 25 RSUs = $ 1,750
Tax deduction: 35% x $ 1,750 = $ 612
Cost of shares issued to employee: $ 70 x 25 = $ 1,750 [Treasury Stock]

A

Entry 1:
Corporate:

Dr APIC (332200) 1,750
Cr Treasury Stock (380000) 1,750
[To record delivery of shares to the employee]

Affiliate:
No Entry

Entry 2:
Corporate:

Dr Intercompany Receivable (43xxxx) 1,750
Cr Equity Clearing (366303) 1,750
[To invoice The Affiliate the market price of RSUs at the end of the vesting period]
[The invoice will subsequently be paid]

Affiliate:
Dr Equity Clearing (366303) 1,750
Cr Intercompany Payable (43xxxx) 1,750
[To record Corporate’s invoice of the RSU market price]
[The Affiliate will subsequently pay the invoice]

Entry 3:
Corporate:

Dr Equity Clearing (366403) 612
Cr Deferred Tax Asset (115530 / 166300) 472
Cr APIC [windfall] (333350) 140
[To record the tax impact at the end of vesting period - the Deferred Tax Asset is eliminated and the difference between the actual tax benefit and the deferred tax asset is the “windfall’]

Affiliate:
Dr Income Tax Liability (215100) 612
Cr Equity Clearing (366403) 612

[To record the tax benefit at the end of the vesting period and the passing through to Corporate]

67
Q

True or False?
Affiliates should not allocate compensation expense related to employee share-based compensation to departments or cost centers.

A

True:

SBC Expense allocation, which is required for public reporting purposes, is performed at an overall level at Corporate, based on headcount data.

Corporate will also decide whether any amount needs to be capitalized as part of Property, Plant and Equipment or Inventories, based on overall head count data.

68
Q

True or False?

Forfeitures adjust share-based compensation expense for awards that will not vest.

A

True:

SPEC monitors the forfeiture rate periodically to ensure the rate -assumption is reflective of actual forfeitures.

69
Q

True or False?

As an employee transfers to another Affiliate within J&J, the compensation expense will be accounted for at the new Affiliate where the employee transferred to.

A

False:

When an employee transfers to another Affiliate within J&J, the compensation expense will continue to be accounted for at the Affiliate where the employee resided when the award was issued to the employee, based on HR data.

70
Q

Where is the actual tax deduction recorded for SBC expense?

A

By the Affiliate based on where the benefit of the deduction is realized.

For stock options, it is where the employee resides when the exercise occurs.

For RSUs and PSUs, it is where the employee resides at the end of the vesting period.

71
Q

Who incurres the cost of Social Security contributions and Payroll Taxes upon vesting of RSUs , vesting of PSUs, or exercise of stock options and how should they be recognized?

A

These costs are incurred by the local Affiliate and should not be charged back to Corporate using the equity clearing accounts.

Such costs should be recognized on the date of the event.

They should not be accrued over the vesting period.

72
Q

What is account 657010?

A

Comp Exp - SO

Account used to recognize quarterly expense during the vesting period per Fidelity.

73
Q

What is account 657030?

A

Comp Exp - RSU

Account used to recognize quarterly expense during the vesting period per Fidelity.

74
Q

What is account 657040?

A

Comp Exp - PSU

Account used to recognize quarterly expense during the vesting period per Fidelity.

75
Q

What is account 166100?

A

SO Deferred tax account.

Account used for the non-current portion of DTA.

76
Q

What is account 166300?

A

RSU Deferred tax account.

Account used for the non-current portion of DTA.

77
Q

What is account 166300?

A

PSU Deferred tax account.

Account used for the non-current portion of DTA.

Equity Compensation (7 decks)

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