Accounting Chapter 16

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure? a. Common stock, preferred stock, and convertible securities outstanding in lots of even thousands b. Earnings derived from one primary line of business c. Ownership interest consisting solely of common stock d. Ownership interest not consisting solely of common stock

Ownership interest consisting solely of common stock

Stock warrants outstanding should be classified as a. liabilities. b. reductions of capital contributed in excess of par value. c. assets. d. Paid-in-capital stock warrants

Paid-in-capital stock warrants

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 a non-compensatory stock option plan?

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

Due to the importance of earnings per share information, it is required to be reported by all Public Companies Nonpublic Companies a. Yes Yes b. Yes No c. No No d. No Yes

Yes No

Dilutive convertible securities must be used in the computation of a. basic earnings per share only. b. diluted earnings per share only. c. diluted and basic earnings per share. d. none of these.

diluted earnings per share only

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 a. reflected currently in income b. reflected currently in income as a discontinued operations item c. treated as a prior period adjustment. d. treated as an adjustment of additional paid-in capital.

reflected currently in income

Antidilutive securities a. should be included in the computation of diluted earnings per share but not basic earnings per share. b. are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share. c. include stock options and warrants whose exercise price is less than the average market price of common stock. d. should be ignored in all earnings per share calculations.

should be ignored in all earnings per share calculations

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is a. the ease with which convertible debt is sold even if the company has a poor credit rating. b. the fact that equity capital has issue costs that convertible debt does not. c. that many corporations can obtain financing at lower rates. d. that convertible bonds will always sell at a premium.

that many corporations can obtain financing at lower rates

The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be a. reflected currently in income b. reflected currently in income as a discontinued operations item c. treated as a prior period adjustment. d. treated as a direct reduction of retained earnings.

treated as a direct reduction of retained earnings