Chapter 19, Problem 19.5BYP

Real World Case 19–5

Share-based plans; Walmart

• LO19–1, LO19–2

Real World Financials

Walmart offers its employees a variety of share-based compensation plans including stock options, performance share awards, restricted stock, and restricted stock units. The following is an excerpt from a disclosure note from Walmart’s 2015 financial statements:

Share-Based Compensation

The Company has awarded share-based compensation to associates and nonemployee directors of the Company. The compensation expense recognized for all plans was $448 million, $462 million and $388 million for fiscal 2016, 2015 and 2014, respectively. Share-based compensation expense is included in operating, selling, general and administrative expenses in the Company’s Consolidated Statements of Income. The total income tax benefit recognized for share-based compensation was $151 million, $173 million and $145 million for fiscal 2016, 2015 and 2014, respectively. The following table summarizes the Company’s share-based compensation expense by award type:

Required:

1. Walmart’s share-based compensation includes stock options, restricted stock units, restricted stock awards, and performance-based awards. What is the general financial reporting objective when recording compensation expense for these forms of compensation?

2. Walmart reported share-based expense of $448 million in 2015. Without referring to specific numbers and ignoring other forms of share-based compensation, describe how this amount reflects the value of stock options.