IA 2

Bonnie Inc. has 500, 6%, $1,000 face amount bonds outstanding during the entire year. The bonds were issued at face. Each bond is convertible into 14 shares of common stock. The company's tax rate is 30%. What would be the effect of the assumed conversion on the numerator of diluted EPS? Multiple choice question. $21,000

21000

Which of the following stock options is considered "in the money" relating to options with an exercise price of $15 per share?

Current stock price per share is $20.

Which of the following are valid categories of stock option plans for tax purposes? (Select all that apply.)

Incentive stock option plans nonqualified stock option plans

Which of the following statements regarding the effect of the intrinsic value method on the valuation of stock options is correct?

It typically results in zero compensation expense.

Which of the following methods will affect both the numerator and the denominator of diluted earnings per share?

The "if converted" method

Nonqualified stock option plan matches

The employer granting the stock options can deduct the difference between the exercise and the market price at the exercise date for tax purposes.

Incentive stock option plan matches

The employer granting the stock options cannot deduct stock option-related values for tax purposes.

Nonqualified stock option plan matches Choice

The recipient must pay taxes on the difference between the exercise price and the market price of the stock at the exercise date.

Incentive stock option plan matches

The recipient pays taxes only when the shares acquired under the plan are sold.

The effect of changes in estimated option forfeitures must be recognized

cumulatively in the year the estimate changes.

If the employer can elect to settle SAR awards with company stock, SAR awards are classified as

equity.

Which of the following are among the factors that must be considered in order to estimate the total compensation associated with stock options? (Select all that apply.)

exercise price of the options expected term of the option current market price of the stock

Warrants, options, and rights are antidilutive if the exercise price is Multiple choice question. lower than the stocks' end-of-year market price.

higher than the stocks' average market price.

Restricted stock awards are

included in the calculation of EPS if unvested.

On the date when stock options are granted, the sponsoring company should

measure the fair value of the options.

Initially, recognition of compensation expense for performance-based plans requires that the achievement of the target is

probable.

Mueller Company estimates that it is unlikely that a particular executive will achieve a specific performance target. Mueller already recognized compensation expense related to this performance plan. Mueller must ........the related expense.

reverse/credit

Typically stock options are exercisable

several years after the grant date.

The fair value of stock options is measured when the

stock options are granted.

Earnings per share is reported very frequently in the financial press because it

tends to summarize the company's performance.

Because options are not exercised immediately, their valuation includes a(n)

time value

In calculating diluted EPS, which of the following restricted stock awards is included in the calculation? Multiple choice question.

unvested restricted stock awards only

True or false: In calculating diluted EPS,convertible preferred stock is assumed converted only if the stock was issued during an earlier period.

False

Munster Company issued options to a key executive that are contingent on the company achieving a 10% increase in sales revenue within the next 12 months. The company believes that it is likely that this target will be achieved and accrues $5 million in related compensation.

credit compensation expense for $5 million.

Maggie Company issued options valued at $1 million to one of its executives that are contingent on the company achieving a 10% increase in sales revenue within the next 12 months. The company believes that it is possible that this target will be achieved. After 6 months, the company estimates that it is probable that the target will be achieved. Based on this new estimate, the company must

debit compensation expense for $1 million.

When stock options expire, compensation expense

is not affected.

Warrants, options, and rights are dilutive if the exercise price is

lower than the stocks' average market price.

Muller Company sponsors a performance-based stock option plan. When the options are granted, Muller should recognize related compensation expense if it is..... that the performance target will be met.

probable or likely

Stock options are often used as employee incentives; therefore, stock options are typically exercisable

several years after they were granted.

Restricted stock units that are payable in cash are classified as

a liability

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

145,000 shares.

Under its restricted stock award plan, Katrin Corp. grants 100,000 of its $1 par value common shares to certain executives on January 2, 2018. The awards are contingent on continued employment for 4 years. Shares have a current market value of $10 per share. For the year ended December 31, 2021, Katrin should recognize compensation expense of Multiple choice question. $0. Reason: (100,000 x 10)/4 $1,000,000. Reason: (100,000 x 10)/4 $250,000. Reason: (100,000 x 10)/4

250000

Bonnie Inc. has 500, 6%, $1,000 face amount bonds outstanding during the entire year. The bonds were issued at face. Each bond is convertible into 14 shares of common stock. The company's tax rate is 30%. What would be the effect of the assumed conversion on the denominator of diluted EP

7,000 shares would be added.

Frohe Inc. sponsors a restricted stock units award plan under which employees can choose to receive either company stock or cash. Frohe should determine the fair value of the award:

on the date of grant

Accounting for stock option plans consistent with the FASB's recommendation provided two choices for valuing stock options. What were these choices?

fair value method intrinsic value method

If convertible securities are dilutive to EPS, the effect of the assumed conversion will (Select all that apply.)

increase the denominator by the additional common shares that would have been issued upon conversion. increase the numerator by interest on bonds or preferred dividends that would have been avoided.

The price-earnings ratio indicates a company's earnings quality by

indicating the multiple the market is willing to pay for earnings