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