Econ 136

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service

Which of the following is not a characteristic of an employee stock-purchase plan

an unlimited time period is permitted for the exercise of an option as long as the holder is still employed by the company

A corporation issues bonds with detachable warrants. The amount to be reported to paid in capital is preferably

based on the market value of the two securities

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the

beginning of the earliest period reported (or at the time of issuance, if later

The conversion of bonds is most commonly recorded by the

book value method

The conversion of preferred stock is most commonly recorded by the

book value method

The distribution of stock rights to existing common stockholders will increase paid-in capital at the

date of exercise of rights

In calculating diluted earnings per share, dividends on nonconvertible preferred stock should be

deducted from net income whether declared or not

An executive pays no taxes at the time of exercise in a(an)

incentive stock option plan

The date on which to measure the employee compensation element in a stock option granted to a corporate employee is ordinarily the date on which the employee

is granted the option

Convertible bonds

may be exchanged for equity securities

Under the intrinsic value method, compensation expense resulting from an incentive stock option is generally

not recognized if the market price does not exceed the option price at the date of the grant

For stock appreciation rights, the measurement date for computing compensation is the date

of exercise

Stock warrants outstanding should be classified as

paid-in capital

When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to

premium on bonds payable

When computing diluted earnings per share, convertible securities are

recognized only if they are dilutive

When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be

reflected currently in income

A company estimates the fair value of SARs, using an option-pricing model, for

share-based liability awards

What additional consideration is offered to convertible bondholders to encourage conversion, the payment is called a(n)

sweetener

Corporations issue convertible debt for two main reasons. One is the desire to to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

that many corporations can obtain debt financing at lower rates

The major difference between convertible debt and stock warrants is that upon exercise of the warrants

the holder has to pay a certain amount of cash to obtain the shares

Which of the following is not a characteristic of an employee stock-purchase plan?

the plan is not open to almost all full-time employees

Which of the following is an advantage of a stock-restricted plan?

the stock never become completely worthless

Proceeds from the issuance of debt securities with stock warrants should not be allocated between debt and equity features when

the warrants issued with debt securities are nondetachable

The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

treated as a direct reduction of retained earnings