Ch. 15 t/f
. Mandatorily redeemable preferred stock is considered equity because the issuing firm has the option, but not the obligation, to redeem the shares.
F
A $1,500 loss will be reported in the income statement when a company sells treasury stock for $8,500 if the treasury stock was initially purchased for $10,000.
F
A $3,000 increase in total owners' equity occurs if treasury stock costing $11,500 is sold for $14,500
F
A company has stock options outstanding which allow the holders of the options to buy 12,000 shares of common stock; therefore 12,000 shares will be added to the denominator when calculating diluted earnings per share.
F
Corporate distributions to shareholders are governed by state law and are consistent from state to state.
F
Current GAAP requires that all convertible bonds be considered as if converted and included in the denominator of diluted earnings per share.
F
Current GAAP requires that share-based compensation be expensed at the grant date of the stock options award.
F
Diluted earnings per share will always be shown on the income statement for companies with complex capital structures.
F
Dividends paid by a corporation represent a distribution of earnings to shareholders and are reported as an expense in the income statement
F
Opposition to the FASB review of APB No. 25 on stock options arose because stock options do not involve a cash outflow, and to treat them as an expense violates materiality.
F
Preferred stock is viewed by many to be similar to a debt issue due to the fact that preferred stock dividends are a deductible corporate expense.
F
SFAS No. 123 required companies to use the fair value approach when determining compensation expense pertaining to stock options.
F
The book value of owners' equity gives an accurate picture of potentially legal asset distributions in states that have adopted the 1984 Revised Model Business Corporation Act
F
The par value of common stock is set by the state government
F
Two companies, Company A and Company B, issue convertible bonds at par. If Company A uses IFRS and Company B follow U.S. GAAP, the amount Company A records for the debt will be greater than the amount Company B records for the debt.
F
Under IFRS a company may report either a statement of financial position or a statement of changes in shareholders' equity but it need not provide both statements.
F
Under IFRS most preference shares are reported as equity and dividends are treated as interest expense on the income statement.
F
When a loan agreement restricts a company from distributing its entire balance of retained earnings as dividends to shareholders, restricted retained earnings must be reported separately from unrestricted retained earnings on the face of the balance sheet.
F
. Mandatorily redeemable preferred stock dividends are reported as interest expense on the income statement.
T
A convertible bond's net-of-tax interest expense is added back to net income when determining diluted earnings per share only if the bond is known to be dilutive.
T
A reason prompting a firm to purchase treasury stock is that management believes the stock is undervalued in the marketplace and therefore represents a good investment opportunity.
T
A stock's par value does not necessarily have any relationship with a stock's market value.
T
According to current GAAP, convertible bonds must be recorded at the value of debt only, with no value assigned to the conversion feature.
T
By using the book value method to record the conversion of convertible bonds, managers are able to protect themselves from recording conversion losses.
T
Convertible bonds that were outstanding during the entire year will not have an impact on the weighted average number of common shares outstanding used in the calculation of basic earnings per share.
T
Corporations that issue preferred stock do so because preferred stock is less risky than debt
T
Current GAAP requires companies to measure the fair value of stock options at the grant date.
T
Current GAAP requires the allocation of total share-based compensation cost to expense on a straight-line basis over the vesting period.
T
If a company purchases treasury stock its earnings per share will increase.
T
If a firm has a complex capital structure, GAAP requires that both basic and fully diluted earnings per share must be reported.
T
Issuing preferred stock is advantageous to financially weak companies because of the flexibility associated with the timing of the dividend payments.
T
Many start-up high-growth companies use stock options as a means of attracting talented employees while attempting to conserve cash.
T
One reason that companies issue stock options is to attempt to align employees' interests with the interests of the owners
T
SFAS No. 123 was issued as a compromise to the FASB's original position regarding stock options as it allowed companies to choose either the APB No. 25 intrinsic value method or to expense the fair value of the options.
T
The "if-converted" method for computing earnings per share dilution understates diluted earnings per share when a company's share price is substantially below the conversion price of the debt.
T
The 1984 Revised Model Business Corporation Act redefined solvency as a situation where the fair value of assets exceed the fair value of liabilities after a distribution to shareholders.
T
The 1984 Revised Model Business Corporation Act would potentially allow a corporation to have negative book value of net assets after an asset distribution occurred.
T
The comparability of earnings per share across firms is influenced by the relative amount of capital raised by the various firms and by the ability of the firms to manage their reported earnings per share.
T
The diluted EPS figure is a conservative measure of the earnings flow to each share of stock.
T
The proprietary view of a firm stresses the importance of owners' equity and differentiates between capital provided by owners and creditors.
T
Treasury stock is considered to be a deduction from shareholders' equity.
T
Two companies, Company A and Company B, issue convertible bonds at par. If Company A uses IFRS and Company B follow U.S. GAAP, the amount Company A records for interest expense will be greater than the amount Company B records for interest expense.
T
Under current GAAP a stock dividend declaration and distribution will not reduce either total assets or total owners' equity
T
When a company has no convertible securities and no stock options or warrants outstanding, the company has a simple capital structure
T
When a company repurchases its own shares, the transaction may not result in treasury stock being reported on the balance sheet
T
