ACCTG 472 Chap 19 SB
Contingent issuable shares may be included in the calculation of basic/dilutive/or both EPS?
dilutive
Investors' desire to focus on one number that may summarize a company's performance may explain the importance of
earnings per share
Donald Company grants stock options to certain employees. On the date of grant, Donald should measure total compensation based on par value of the stocks to be issued under the grant. the difference between the option exercise price and the current market price. the fair value of the options.
fair value of the options
Falcon Company grants stock options to its upper and middle management employees. The options vest over a 4-year period, with 25% exercisable after 1 year, 25% after 2 years, another 25% after 3 years, and the remaining 25% after 4 years. This is an example of
graded vesting - over time (cliff vesting is when they come exercisable all at once).
The goal of diluted EPS is to report the _____ potential dilution that might result from the conversion or exercise of securities and equity contracts.
highest
The method that assumes that a conversion into common stock occurred at the later of the beginning of the period or the time the convertible security is issued is referred to as the ________ method
if converted
Vested restricted stock awards are (Select all that apply.) added in the denominator for the purpose of calculating diluted EPS only. included in the denominator of basic EPS. already outstanding.
included in the denominator of basic EPS. already outstanding.
Antidilutive securities are excluded from the calculation of EPS because they would
increase EPS
Option values include the following essential components: a(n) ___________ value & a(n) ____________ value
intrinsic, time
Compensation plans that are tied to the achievement of certain targets and are used to motivate key employees are referred to as ___________ compensation plans
management or performance
For the purpose of deriving EPS, securities are considered dilutive if they are capable of
reducing earnings per share.
Share-based plans that requires that the awardee continue to be employed by the granting company are typically referred to as
restricted stock plans
Proceeds under the treasury stock method may include the current market value of the stocks assumed to have been acquired with the options. total compensation from nonvested awards. amounts received under the hypothetical exercising of the options. tax benefits derived from nonqualified stock options.
total compensation from nonvested awards. amounts received under the hypothetical exercising of the options.
Which of the following must be presented in a company's financial statements (which include the financial statement notes), assuming that the related financial statement items exist for that company? EPS—income from continuing operations EPS—operating income EPS—discontinued operations EPS—net income
EPS—income from continuing operations EPS—discontinued operations EPS—net income
Plans that permit all employees to buy shares directly from their company at favorable prices are referred to as employee share purchase plans. employee stock options. employee bonus share plans.
employee share purchase plans.
In which order is EPS presented: net income, income from continuing operations, income from discontinued
1. income from continuing, 2. income from discontinued, 3. net income
Pfeffer Company reports net income of $360 million for 20X1; the company's tax rate is 40%. At the beginning of the year, 200,000 common shares were outstanding. On August 1, the company issued an additional 120,000 shares. Weighted-average shares will be
250,000. Reason: [200,000 + (120,000 x 5/12)]
At the beginning of the year, Solen Corp. had 100,000 shares of common stock outstanding. On April 1, the company issued an additional 60,000 shares. Weighted-average shares for the year will be 180,000 shares. 160,000 shares. 145,000 shares.
145,000 shares
Horst Company has 50,000 stock options outstanding. The option exercise price is $13 per share, the average market price of the stock was $12 per share during the year, and the end-of-year stock price was $14. For the purpose of calculating EPS, these stock options are dilutitive/anti/neither
antidilutive.
In calculating diluted EPS under the treasury stock method, one component of the proceeds from the exercise of options include par value of the common shares issued cash received at exercise total compensation expense from the stock option award
cash received at exercise
Marian Company granted restricted stock units for its par value stock to its top executives. When the restriction is lifted, Marian should (Select all that apply.) (journal entry)
credit paid-in capital in excess of par. debit paid-in capital—restricted stock. credit common stock.
Warrants, options, and rights are antidilutive if the exercise price is lower than the stocks' average market price. lower than the stocks' end-of-year market price. higher than the stocks' average market price. higher than the stocks' end-of-year market price.
higher than the stocks' average market price.
If convertible bonds are assumed to have been converted, the numerator would be assumed to ____ by the ______ effect of the interest saved.
increase; after-tax
Which of the following statements regarding the role of antidilutive securities in the calculation of EPS is correct? They are included in the calculation of basic EPS only. They are included in the calculation of diluted EPS only. They are included in the calculation of both basic and diluted EPS. They are ignored when calculating both basic and diluted EPS.
They are ignored when calculating both basic and diluted EPS.
Which of the following will result in the distribution of additional shares? (Select all that apply.) Stock splits Stock dividends Cash dividend
Stock splits Stock dividends
Which of the following scenarios will increase total assets and equity?
The sale of new shares
In calculating EPS, preferred stock dividends are subtracted from the numerator because EPS represents earnings available to ___________ shareholders
common
In calculating diluted EPS, which of the following restricted stock awards is included in the calculation? vested restricted stock awards only unvested restricted stock awards only all restricted stock awards
unvested restricted stock awards only
Total compensation associated with restricted stock awards typically is equal to the shares' market value at time of the removal of the restriction. par value. market price at grant date of the award.
market price at grant date of the award.
Securities that upon conversion or exercise of potential common shares would increase EPS are referred to as ______________ securities
antidilutive
Stock appreciation rights (SAR) may be payable in _________ or ___________
cash or shares
The way we take into account the dilutive effect of stock options is referred to as the ___________ stock method
treasury
Fuller Corp. has 10,000 options outstanding that allow employees to purchase each share of stock for $10. The market price of the stock is $14. The intrinsic value of the related options is
$4 per share
Which of the following potential common shares may be included in the calculation of diluted EPS, but not basic EPS? Outstanding common shares Restricted stock Contingent issuable shares Stock options Convertible securities
Restricted stock Contingent issuable shares Stock options Convertible securities
Which of the following are common types of restricted stock plans?
Restricted stock units Restricted stock awards
Which of the following is correct regarding the nature of restricted stock? The shares can only be sold back to the issuing company and not outside investors. The shares typically are contingent on the continued employment of the awardee. The shares can only be traded during certain time periods.
The shares typically are contingent on the continued employment of the awardee.
True or false: Stock options have become an integral part of most medium and large companies.
True
Which of the following can be used to satisfy SARs awards? (Select all that apply.) Cash Shares Inventory Receivables
cash & shares
Warrants, options, and rights are dilutive if the exercise price is higher than the stocks' end-of-year market price. lower than the stocks' average market price. higher than the stocks' average market price. lower than the stocks' end-of-year market price.
lower than the stocks' average market price.
Falken Company awards 1,000 shares of common stock to Robert Small. The shares are restricted and require that Robert remains with the company for at least 2 more years. The current market price of the shares is $15 per share. Total compensation associated with this restricted stock award is
$15k
Which of the following accounting numbers is reported most frequently by the media?
earnings per share
Which of the following statements regarding the prevalence of stock option awards is correct? Stock options are unique to large multinational companies. All large companies grant stock options. All public companies grant stock options. Many large and medium-size companies grant stock options.
Many large and medium-size companies grant stock options.
An actual conversion of dilutive convertible securities will decrease the reported amount of diluted EPS. increase the reported amount of diluted EPS. decrease the reported amount of basic EPS. not affect the reported amount of diluted EPS.
decrease the reported amount of basic EPS. not affect the reported amount of diluted EPS.
Which of the following factors (each considered independently) will tend to lower the value of stock options? (Select all that apply.) a longer option term higher dividends volatility of the stock price increases in the market price of the underlying stock a higher exercise price
higher dividends a higher exercise price
Restricted stock awards are excluded from the calculation of EPS. included in the calculation of EPS if unvested. included in the calculation of EPS if vested.
included in the calculation of EPS if unvested.
A strategy that simplifies the determination of whether convertible securities are dilutive is to compare their ________ effect on earnings per share.
incremental
The benefit the holder of an option would realize by exercising the options rather than buying the underlying stock directly is referred to as _________ value
intrinsic
Diluted EPS should be the highest/lowest/average EPS?
lowest EPS
Share-based plans typically are grouped into two major categories based on the conditions that must be met by employees in order to receive the benefits of the award. These categories are
market-based plans. performance-based plans.
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. The estimated value of the options is $6 per option. During 20X4, 9,000 stock options were exercised. In 20X5, the remaining stock options expire. When the options expire, Utta should credit
paid-in capital—expired stock options for $6,000.
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. The estimated value of the options is $6 per option. During 20X4, 9,000 stock options were exercised. In 20X5, the remaining stock options expire. Utta should recognize the expiration by debiting
paid-in capital—stock options for $6,000.
When a company reacquires its own shares, and weighted-average shares are calculated for the purpose of determining EPS, the reacquired shares that are subtracted from the weighted-average calculation are weighted for the period that they are outstanding. entire fiscal period. period that they are not outstanding.
period that they are not outstanding.
Securities that may become common shares in the future are considered
potential common shares.
Which of the following are subtracted when determining earnings available to common shareholders?
preferred stock dividends
The treasury stock method takes into account the dilutive effect of stock options and assumes that the proceeds from the exercise of options are used to sell treasury shares. issue treasury shares. purchase treasury shares. retire treasury shares.
purchase TS
Compensation relating to stock option grants should be ignored until the grants are exercised. recognized over the service period for which employees receive options. ignored permanently if the current market price of the stock does not exceed the exercise price.
recognized over the service period for which employees receive options.
Stock options give employees the choice to purchase ________ during a specific time period. Multiple choice question. an unlimited number of shares of the firm's stock at a price determined by future conditions an unlimited number of shares of the firm's stock at a specified price a specified number of shares of the firm's stock at a specified price a specified number of shares of the firm's stock at a price determined by future conditions
specified number of shares of the firm's stock at a specified price
Which of the following is correct regarding stock options and other share-based plans? They typically are awarded based on the age of the company's employees. They typically are awarded based on age at retirement. They frequently specify a performance or market condition.
specify a performance or market condition.
____________ ____________ plans give employees the choice to purchase a specified number of shares of the firm's stock at a specified price during a specified period of time.
stock option
Earnings per share is reported very frequently in the financial press because it tends to fluctuate less than net income. tends to summarize the company's performance. tends to fluctuate more than net income. is easy to calculate.
tends to summarize the company's performance.
Which of the following is a likely advantages of employee share purchase plans for employers? Increased employee loyalty to the company. Enhanced earning per share for the purchase year. Higher stock prices immediately after the purchase.
Increased employee loyalty to the company.
Place the presentation of earnings per share in the correct order.
1. EPS - income from continuing operations 2. EPS - discontinued operations 3. EPS - net income
Salt Company reports net income of $360 million for 2017; the company's tax rate is 40%. At the beginning of the year, 200 million common shares were outstanding. On July 1, Salt sold an additional 80 million shares and on October 1 distributed a 10% stock dividend. On December 1, the company reacquired 24 million of its outstanding shares. The company's weighted-average shares for the purpose of calculating basic EPS will be
262 million. Reason: [(200 + [80 x 6/12]) x 1.1] - 24/12
Vogel Corp.'s denominator for calculating diluted EPS is 57,300 weighted-average shares. Included in the denominator were 5,000 shares related to convertible preferred stocks assumed to have been converted. If the convertible preferred stock had actually been converted, the weighted-average shares for purposes of diluted EPS would have been
57,300
Which of the following will qualify a company for having a simple capital structure for the purpose of earnings per share? A company that has no outstanding securities that could potentially dilute EPS. A company that is not traded on the major stock exchanges. A company that has no complex earning-related transactions.
A company that has no outstanding securities that could potentially dilute EPS.
Which of the following are likely advantages of employee share purchase plans for employees? (Select all that apply.) A discount on the purchase price of the shares. Shares that promise special privileges. The absence of brokerage fees to purchase the shares.
A discount on the purchase price of the shares. The absence of brokerage fees to purchase the shares.
Which of the following strategies will simplify the determination of whether convertible securities are dilutive or antidilutive to EPS? Assume all convertible securities are dilutive. Calculating EPS, including each possible combination of convertible securities. Comparing the incremental effect of the conversion.
Comparing the incremental effect of the conversion.
Which of the following shares may be included in the calculation of basic EPS? Outstanding common shares Convertible securities Restricted stock Stock options Contingent issuable shares
Outstanding common shares
Which of the shares may be included in the calc of basic EPS? Outstanding common shares Contingent issuable shares Convertible securities Restricted stock Stock options
Outstanding common shares
Which of the following would prevent Norbert Company from having a simple capital structure for the purpose of reporting EPS? cash dividends stock dividends convertible preferred stocks nonconvertible preferred stocks nonconvertible bonds
convertible preferred stocks
What factors would affect the calculation of diluted EPS if convertible bonds are assumed to have been converted into common stock of the issuing company? (Select all that apply.) The numerator would reflect the pretax savings of interest. The denominator would reflect the number of bonds assumed converted. The denominator would reflect the additional common shares assumed issued. The numerator would reflect the after-tax savings of interest.
The denominator would reflect the additional common shares assumed issued. The numerator would reflect the after-tax savings of interest.
Marian Company granted restricted stock units for its par value stock to its top executives. When the restriction is lifted, Marian should (journal entry)
debit paid-in capital—restricted stock. credit paid-in capital in excess of par. credit common stock.
What condition must be met to include contingent issuable shares in the calculation of diluted EPS? The required condition already is being met. Meeting the required condition is estimated to be probable. Meeting the required condition is at least possible
The required condition already is being met.
Which of the following are facts or conditions that are specifically set forth in stock option plans? (Select all that apply.) The minimum number of shares option holders must purchase The time period during which option holders may purchase shares The maximum number of shares option holders may purchase The price at which option holders may purchase shares
The time period during which option holders may purchase shares The maximum number of shares option holders may purchase The price at which option holders may purchase shares
Which of the following statements is correct regarding stock dividends and stock splits? They represent distributions of additional shares to existing shareholders. They represent distributions of additional shares to new shareholders. They represent distributions of additional shares to prior shareholders.
They represent distributions of additional shares to existing shareholders.
Which of the following represent typical goals of executive compensation plans? (Select all that apply.) To significantly reduce corporate tax obligations. To provide compensation to certain employees. To reduce reported net income. To create performance incentives for certain employees.
To provide compensation to certain employees. To create performance incentives for certain employees.
Which of the following factors (each considered independently) will tend to increase the value of stock options? (Select all that apply.) higher dividends a longer option term volatility of the stock price a higher exercise price increases in the market price of the underlying stock
a longer option term volatility of the stock price increases in the market price of the underlying stock
Employee share purchase plans typically allow ______ to purchase company shares at favorable terms.
all employees
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. On the date of grant, the estimated value of the options is $6 per option. During 20X4, when the market value of the stock is $30 per share, 9,000 stock options were exercised. Utta Corp. should recognize this event by debiting (Select all that apply.)
cash for $180,000. paid-in capital—stock options for $54,000.
When restrictions are lifted on restricted stock units for par value stock, paid-in capital restricted stock is replaced by
common stock paid-in capital - excess of par
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. On the date of grant, the estimated value of the options is $6 per option. During 20X4, 9,000 stock options were exercised. Utta Corp. should recognize this event by crediting (Select all that apply.)
common stock for $9,000. paid-in capital in excess of par for $225,000.
Which of the following may result in potential common shares? nonconvertible bonds nonconvertible preferred stocks convertible bonds common stocks authorized convertible preferred stocks
convertible bonds convertible preferred stocks
The value of stock options has a time value component because the value of the options may change between the date of grant and the time the options are exercised. the options will accrue interest between the date of grant and the time the options are exercised. options do not have to be exercised immediately.
the value of the options may change between the date of grant and the time the options are exercised. options do not have to be exercised immediately.
Which of the following common or potential common shares must be considered for inclusion in basic EPS? stock warrants nonconvertible preferred stocks convertible preferred stocks vested restricted stock awards nonvested restricted stock awards
vested restricted stock awards
