chapter 16 int acctg

A company should report per share amounts for Net income, but not for income from continuing operations.

FALSE

Companies recognize a gain or loss when stockholders exercise convertible preferred stock

FALSE

Companies recognize the gain or loss on retiring convertible debt as comprehensive income

FALSE

If an employee fails to exercise a stock option before its expiration date, the company should decrease compensation expense

FALSE

If an employee forfeits a stock option because of failure to satisfy a service requirement, the company should record paid-in capital from expired options

FALSE

In computing diluted earnings per share, stock options are considered dilutive when their option price is greater than the market price

FALSE

Nondetachable warrants, as with detachable warrants, require an allocation of the proceeds between the bonds and the warrants

FALSE

Preferred dividends are subtracted from net income but not income from continuing operations in computing earnings per share

FALSE

The market value method is used to account for the exercise of convertible preferred stock.

FALSE

Under the fair value method, companies compute total compensation expense based on the fair value of options on the date of exercise

FALSE

When stock dividends or stock splits occur, companies must restate the shares outstand-ing after the stock dividend or split, in order to compute the weighted-average number of shares

FALSE

A company should allocate the proceeds from the sale of debt with detachable stock warrants between the two securities based on their market values

TRUE

If a stock dividend occurs after year-end, but before issuing the financial statements, a company must restate the weighted-average number of shares outstanding for the year

TRUE

If preferred stock is cumulative and no dividends are declared, the company subtracts the current year preferred dividend in computing earnings per share

TRUE

In a contingent issue agreement, the contingent shares are considered outstanding for computing diluted EPS when the earnings or market price level is met by the end of the year

TRUE

The FASB states that when an issuer makes an additional payment to encourage conversion, the payment should be reported as an expense

TRUE

The intrinsic value of a stock option is the difference between the market price of the stock and the exercise price of the options at the grant date

TRUE

The recording of convertible bonds at the date of issue is the same as the recording of straight debt issues.

TRUE

The service period in stock option plans is the time between the grant date and the vesting date.

TRUE

When a company has a complex capital structure, it must report both basic and diluted earnings per share

TRUE

A company uses income from continuing operations to determine whether potential common stock is dilutive or antidilutive, and this is referred to as a. the control number. b. the potential number. c. dilutive information. d. impact information.

a

At December 31, 2017 Rice Company had 300,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On January 30, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Rice declared a 100% stock dividend on its common stock. Net income for 2018 was $1,140,000. In its 2018 financial statements, Rice's 2018 earnings per common share should be a. $1.80. b. $1.89. c. $3.60. d. $3.80.

a

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a a. credit of $217,600 to Paid-in Capital in Excess of Par. b. credit of $192,000 to Paid-in Capital in Excess of Par. c. credit of $89,600 to Premium on Bonds Payable. d. loss of $12,800.

a

Grimm Company has 2,900,000 shares of common stock outstanding on December 31, 2017. An additional 150,000 shares of common stock were issued on July 1, 2018, and 300,000 more on October 1, 2018. On April 1, 2018, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2018. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2018? a. 3,050,000 and 3,230,000 b. 3,050,000 and 3,050,000 c. 3,050,000 and 3,290,000 d. 3,350,000 and 3,530,000

a

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants a. are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share. b. are added, net of tax, to the numerator of the calculation for diluted earnings per share. c. are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock. d. are not used to calculate the number of common shared repurchased at the average market price, when computing diluted earnings per share

a

In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? a. Annual preferred dividend b. Annual preferred dividend times (one minus the income tax rate) c. Annual preferred dividend times the income tax rate d. Annual preferred dividend divided by the income tax rate

a

In order to retain certain key executives, Jensen Corporation granted them incentive stock options on December 31, 2017. 100,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2018 $46 per share December 31, 2019 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,000,000. What amount of compensation expense should Jensen recognize as a result of this plan for the year ended December 31, 2018 under the fair value method? a. $500,000. b. $1,000,000. c. $1,100,000. d. $3,500,000.

a

Lang Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value. The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported as a. Discount on Bonds Payable. b. Premium on Bonds Payable. c. Common Stock Subscribed. d. Paid-in Capital in Excess of Par—Stock Warrants.

a

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2018, the holders of $2,400,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,000,000. In applying the book value method, what amount should Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $ 330,000. b. $ 160,000. c. $1,440,000. d. $ 720,000.

a

On January 1, 2017, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 120,000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. On December 31, 2019, 25,000 SARs are exercised by executives. What amount of compensation expense should Korsak recognize for the year ended December 31, 2019? a. $570,000 b. $390,000 c. $1,170,000 d. $156,000

a

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee a. is granted the option. b. has performed all conditions precedent to exercising the option. c. may first exercise the option. d. exercises the option.

a

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the a. beginning of the earliest period reported (or at time of issuance, if later). b. beginning of the earliest period reported (regardless of time of issuance). c. middle of the earliest period reported (regardless of time of issuance). d. ending of the earliest period reported (regardless of time of issuance).

a

Under the intrinsic value method, compensation expense resulting from an incentive stock option is a. not recognized if the market price does not exceed the option price at the date of grant. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. recognized in the period of exercise.

a

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.

a

. 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

b

A company estimates the fair value of SARs, using an option-pricing model, for a. share-based equity awards. b. share-based liability awards. c. both equity awards and liability awards. d. neither equity awards or liability awards.

b

A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is Dilutive Antidilutive a. Yes Yes b. Yes No c. No Yes d. No No

b

An executive pays no taxes at the time of exercise in a(an) a. stock appreciation rights plan. b. incentive stock option plan. c. nonqualified stock option plan. d. Taxes would be paid in all of these.

b

At December 31, 2017, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2018, Sager paid $1,200,000 cash dividends on the common stock and $800,000 cash dividends on the preferred stock. Net income for 2018 was $6,800,000 and the income tax rate was 40%. The diluted earnings per share for 2018 is (rounded to the nearest penny) a. $2.48. b. $3.49. c. $5.00. d. $5.66.

b

At December 31, 2017, Tatum Company had 2,000,000 shares of common stock outstanding. On January 1, 2018, Tatum issued 500,000 shares of preferred stock which were convertible into 1,000,000 shares of common stock. During 2018, Tatum declared and paid $1,200,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2018, was $5,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2018? (Round to the nearest penny.) a. $1.50 b. $1.67 c. $2.50 d. $2.07

b

At December 31, 2018 and 2017, Miley Corp. had 180,000 shares of common stock and 12,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2018 or 2017. Net income for 2018 was $450,000. For 2018, earnings per common share amounted to a. $2.49. b. $2.10. c. $1.83. d. $1.70.

b

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What should be the amount of the unamortized bond discount on April 1, 2018 relating to the bonds converted? a. $46,800. b. $43,200. c. $23,400. d. $44,400.

b

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What was the effective interest rate on the bonds when they were issued? a. 9% b. Above 9% c. Below 9% d. Cannot determine from the information given.

b

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2017. No common stock was issued during 2018. On January 1, 2018, Didde issued 200,000 shares of nonconvertible preferred stock. During 2018, Didde declared and paid $100,000 cash dividends on the common stock and $80,000 on the preferred stock. Net income for the year ended December 31, 2018 was $620,000. What should be Didde's 2018 earnings per common share? a. $2.07 b. $1.80 c. $1.73 d. $1.47

b

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. diluted nor basic earnings per share

b

Foyle, Inc., had 830,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018, an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2018. The average market price of Foyle's common stock was $20 during 2018. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2018? a. 850,000 b. 858,000 c. 878,000 d. 882,000

b

If a company offers additional considerations to convertible bondholders in order to encourage conversion, it is called a(an): a. forced conversion. b. sweetener. c. additional conversion. d. end conversion.

b

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2018 2017 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 6% convertible bonds $2,400,000 $2,400,000 During 2018, Piper paid dividends of $0.80 per share on its common stock and $2.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 6% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2018, was $400,000. Assume that the income tax rate was 30%. What should be the diluted earnings per share for the year ended December 31, 2018, rounded to the nearest penny? a. $2.09 b. $1.96 c. $1.78 d. $2.23

b

Kasravi Co. had net income for 2018 of $600,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12,000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2018? a. $3.00 b. $2.97 c. $2.86 d. $2.83

b

Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $220,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a. $130,000 b. $124,000 c. $144,000 d. $120,000

b

Milo Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is a. 851,000. b. 872,000. c. 893,000. d. 914,000.

b

Nolte Co. has 4,800,000 shares of common stock outstanding on December 31, 2017. An additional 200,000 shares are issued on April 1, 2018, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2018 is a. 5,110,000 and 5,110,000. b. 5,110,000 and 5,170,000. c. 5,110,000 and 3,050,000. d. 5,880,000 and 5,320,000.

b

On December 1, 2018, Lester Company issued at 103, eight hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2018, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be a. $774,560. b. $782,800. c. $800,000. d. $824,000.

b

On January 1, 2017, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 120,000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. What amount of compensation expense should Korsak recognize for the year ended December 31, 2017? a. $ 360,000 b. $ 540,000 c. $ 450,000 d. $2,160,000

b

On January 1, 2017, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 120,000 SARs. Current market prices of the stock are as follows: January 1, 2017 $35 per share December 31, 2017 38 per share December 31, 2018 30 per share December 31, 2019 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2017. What amount of compensation expense should Korsak recognize for the year ended December 31, 2018? a. $0 b. $60,000 c. $600,000 d. $300,000

b

On January 1, 2018 Reese Company granted Jack Buchanan, an employee, an option to buy 300 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $4,800. Buchanan exercised his option on September 1, 2018, and sold his 300 shares on December 1, 2018. Quoted market prices of Reese Co. stock during 2018 were: January 1 $40 per share September 1 $48 per share December 1 $54 per share The service period is for two years beginning January 1, 2018. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2018 on its books in the amount of a. $0. b. $2,400. c. $4,800 d. $5,600

b

On January 1, 2018, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $6,000. Wine exercised his option on October 1, 2018 and sold his 1,000 shares on December 1, 2018. Quoted market prices of Ellison Co. stock in 2018 were: July 1 $30 per share October 1 $36 per share December 1 $40 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense for 2018 on its books in the amount of a. $6,000. b. $2,000. c. $1,500. d. $0.

b

On January 1, 2018, Gridley Corporation had 375,000 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 750,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 420,000 shares and immediately retired the stock. On November 1, 600,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2018? a. 1,530,000 b. 1,125,000 c. 716,665 d. 516,666

b

On January 2, 2018, Mize Co. issued at par $300,000 of 6% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2018. Mize had 100,000 shares of common stock outstanding during 2018. Mize 's 2018 net income was $160,000 and the income tax rate was 30%. Mize's diluted earnings per share for 2018 would be (rounded to the nearest penny) a. $1.35. b. $1.46. c. $1.51. d. $1.60.

b

On January 2, 2018, Perez Co. issued at par $10,000 of 6% bonds convertible in total into 1,000 shares of Perez's common stock. No bonds were converted during 2018. Throughout 2018, Perez had 1,000 shares of common stock outstanding. Perez's 2018 net income was $4,500, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2018. Perez's diluted earnings per share for 2018 would be (rounded to the nearest penny) a. $2.25. b. $2.46. c. $2.55. d. $4.92.

b

On January 2, 2018, Worth Co. issued at par $2,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Worth had 200,000 shares of common stock outstanding during 2018. Worth's 2018 net income was $900,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2018 would be (rounded to the nearest penny): a. $5.00. b. $4.54. c. $4.50. d. $4.72.

b

On July 1, 2018, Chen Company issued for $9,450,000 a total of 90,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $9,225,000. The market price of the rights on July 1, 2018, was $2.50 per right. On October 31, 2018, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 36,000 rights were exercised. As a result of the exercise of the 36,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash 540,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 180,000 b. Cash 540,000 Paid-in Capital—Stock Warrants 90,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 270,000 c. Cash 540,000 Paid-in Capital—Stock Warrants 225,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 405,000 d. Cash 540,000 Paid-in Capital—Stock Warrants 135,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 315,000

b

On July 1, 2018, an interest payment date, $150,000 of Parks Co. bonds were converted into 3,000 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $6,000 unamortized discount on the bonds. Using the book value method, Parks would record a. no change in paid-in capital in excess of par. b. a $9,000 increase in paid-in capital in excess of par. c. a $18,000 increase in paid-in capital in excess of par. d. a $12,000 increase in paid-in capital in excess of par.

b

On June 30, 2015, Norman Corporation granted compensatory stock options for 75,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2019. On January 4, 2018, when the market price of the stock was $42 per share, all 75,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2017 using the fair value method? a. $0. b. $360,000. c. $450,000. d. $900,000.

b

On June 30, 2018, Yang Corporation granted compensatory stock options for 25,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $100,000. The options are exercisable beginning January 1, 2020, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2021. On January 4, 2020, when the market price of the stock was $36 per share, all options for the 25,000 shares were exercised. The service period is for two years beginning January 1, 2018. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2018? a. $100,000 b. $50,000 c. $23,438 d. $0

b

On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Marly should credit Paid-in Capital from Stock Warrants for a. $175,000 b. $103,000 c. $100,000 d. $ 96,000

b

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Payne should record the bonds with a a. discount of $60,000. b. discount of $16,800. c. discount of $15,000. d. premium of $45,000.

b

The conversion of preferred stock is recorded by the a. incremental method. b. book value method. c. market value method. d. par value method.

b

The major difference between convertible debt and stock warrants is that upon exercise of the warrants a. the stock is held by the company for a defined period of time before they are issued to the warrant holder. b. the holder has to pay a certain amount of cash to obtain the shares. c. the stock involved is restricted and can only be sold by the recipient after a set period of time. d. no paid-in capital in excess of par can be a part of the transaction.

b

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 800, $1,000 bonds with the warrants attached was $820,000. The market price of the Vernon bonds without the warrants was $720,000, and the market price of the warrants without the bonds was $80,000. What amount should be allocated to the warrants? a. $80,000 b. $82,000 c. $96,000 d. $100,000

b

When computing diluted earnings per share, convertible securities are a. ignored. b. recognized only if they are dilutive. c. recognized only if they are antidilutive. d. recognized whether they are dilutive or antidilutive.

b

Which of the following is an advantage of a restricted-stock plan? a. It creates new job opportunities in a company. b. It never becomes completely worthless. c. It increases the market price of the stock. c. It increases the profit of a company.

b

Yoder, Incorporated, has 4,200,000 shares of common stock outstanding on December 31, 2017. An additional 800,000 shares of common stock were issued on April 1, 2018, and 400,000 more on July 1, 2018. On October 1, 2018, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2018. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively? a. 5,000,000 and 5,000,000 b. 5,000,000 and 5,100,000 c. 5,000,000 and 5,400,000 d. 5,400,000 and 6,200,000

b

At December 31, 2017 Pine Company had 200,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On February 10, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Pine declared a 100% stock dividend on its common stock. Net income for 2018 was $960,000. In its 2018 financial statements, Pine's 2018 earnings per common share should be a. $4.54. b. $4.27. c. $2.25. d. $1.33.

c

At December 31, 2017, Emley Company had 1,200,000 shares of common stock outstanding. On October 1, 2018, an additional 400,000 shares of common stock were issued. In addition, Emley had $14,000,000 of 6% convertible bonds outstanding at December 31, 2017, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2018. The net income for the year ended December 31, 2018, was $5,250,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2018, rounded to the nearest penny? a. $2.22 b. $2.89 c. $2.78 d. $4.02

c

At December 31, 2017, Kifer Company had 800,000 shares of common stock outstanding. On October 1, 2018, an additional 160,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 5% convertible bonds outstanding at December 31, 2017, which are convertible into 360,000 shares of common stock. No bonds were converted into common stock in 2018. The net income for the year ended December 31, 2018, was $2,500,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2018, should be (rounded to the nearest penny) a. $3.39. b. $2.50. c. $2.38. d. $2.08.

c

At December 31, 2018, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2018. Net income for the year ended December 31, 2018, was $1,700,000. What should be Hancock's 2018 earnings per common share, rounded to the nearest penny? a. $36 b. $4.25 c. $4.00 d. $3.78

c

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2020 if Dunbar Co.'s net income in 2019 is $500,000; in 2018 Dunbar Co.'s net income is $520,000. Beaty Inc. has net income for 2018 of $450,000 and has an average number of common shares outstanding for 2018 of 100,000 shares. What should Beaty report as diluted earnings per share for 2018? a. $5.00 b. $4.50 c. $4.09 d. $3.76

c

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2017? a. $129,000. b. $135,000. c. $141,000. d. $270,000.

c

Colt Corporation purchased Massey Inc. and agreed to give stockholders of Massey Inc. 50,000 additional shares in 2020 if Massey Inc.'s net income in 2019 is $600,000 or more; in 2018 Massey Inc.'s net income is $615,000. Colt has net income for 2018 of $1,500,000 and has an average number of common shares outstanding for 2018 of 500,000 shares. What should Colt report as earnings per share for 2018? Basic Earnings Diluted Earnings Per Share Per Share a. $3.00 $3.00 b. $2.73 $3.00 c. $3.00 $2.73 d. $2.73 $2.73

c

Compensation expense resulting from a compensatory stock option plan is generally a. recognized in the period of exercise. b. recognized in the period of the grant. c. allocated to the periods benefited by the employee's required service. d. allocated over the periods of the employee's service life to retirement

c

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 debt financing at lower rates. d. that convertible bonds will always sell at a premium.

c

During 2018, Gordon Company issued at 104 five hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $20,000 c. $20,800 d. $19,760

c

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2017. During 2018, no additional common stock was issued. On January 1, 2018, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2018, Fultz declared and paid $180,000 cash dividends on the common stock and $150,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2018, was $960,000. What should be Fultz's 2018 earnings per common share, rounded to the nearest penny? a. $1.15 b. $2.10 c. $2.70 d. $3.20

c

Grant, Inc. had 80,000 shares of treasury stock ($10 par value) at December 31, 2017, which it acquired at $11 per share. On June 4, 2018, Grant issued 40,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2017, $15 at June 4, 2018, and $18 at December 31, 2018. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2018? a. $280,000. b. $360,000. c. $440,000. d. $480,000.

c

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,500,000 of 5% convertible bonds outstanding during 2018. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $600,000 and the income tax rate was 30%. Diluted earnings per share for 2018 is (rounded to the nearest penny) a. $2.08. b. $2.12. c. $2.29. d. $2.50.

c

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $2,940,000 for the year ending December 31, 2018. Earnings per share of common stock for 2018 would be a. $4.90. b. $2.32. c. $2.80. d. $3.28.

c

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2018 2017 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,000 shares 15,000 shares 6% convertible bonds $2,400,000 $2,400,000 During 2018, Piper paid dividends of $0.80 per share on its common stock and $2.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 6% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2018, was $400,000. Assume that the income tax rate was 30%. What should be the basic earnings per share for the year ended December 31, 2018, rounded to the nearest penny? a. $1.67 b. $1.87 c. $2.47 d. $2.67

c

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $600,000 of 10% convertible bonds outstanding during 2018. The preferred stock is convertible into 40,000 shares of common stock. During 2018, Lerner paid dividends of $.55 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2018 was $360,000 and the income tax rate was 30%. Diluted earnings per share for 2018 is (rounded to the nearest penny) a. $1.35. b. $1.39. c. $1.51. d. $1.57.

c

On April 7, 2018, Kegin Corporation sold a $6,000,000, twenty-year, 8 percent bond issue for $6,360,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% bond without warrants $1,008 Warrants 21 Common stock 28 What accounts should Kegin credit to record the sale of the bonds? a. Bonds Payable $6,000,000 Premium on Bonds Payable 232,800 Paid-in Capital—Stock Warrants 127,200 b. Bonds Payable $6,000,000 Premium on Bonds Payable 48,000 Paid-in Capital—Stock Warrants 252,000 c. Bonds Payable $6,000,000 Premium on Bonds Payable 105,600 Paid-in Capital—Stock Warrants 254,400 d. Bonds Payable $6,000,000 Premiums on Bonds Payable 360,000

c

On December 31, 2017, Gonzalez Company granted some of its executives options to purchase 180,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,350,000. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. At December 31, 2018 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method? a. $ 450,000 increase. b. $1,350,000 decrease. c. $ 450,000 decrease. d. $0.

c

On December 31, 2017, Houser Company granted some of its executives options to purchase 150,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $3,000,000. The options become exercisable on January 1, 2018, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2018. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2017, as a result of this transaction under the fair value method? a. $3,000,000 decrease b. $1,000,000 decrease c. $0 d. $1,000,000 increase

c

On December 31, 2017, Kessler Company granted some of its executives options to purchase 60,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $360,000. At December 31, 2018, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method? a. $120,000 increase b. $0 c. $120,000 decrease d. $360,000 decrease

c

On January 1, 2017, Sharp Corp. granted an employee an option to purchase 15,000 shares of Sharp's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $350,000. The option became exercisable on December 31, 2018, after the employee completed two years of service. The market prices of Sharp's stock were as follows: January 1, 2017 $30 December 31, 2018 50 For 2018, should recognize compensation expense under the fair value method of a. $225,000. b. $75,000. c. $175,000. d. $0.

c

On January 1, 2018, Evans Company granted Tim Telfer, an employee, an option to buy 5,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $37,500. Telfer exercised his option on September 1, 2018, and sold his 5,000 shares on December 1, 2018. Quoted market prices of Evans Co. stock during 2018 were January 1 $25 per share September 1 $30 per share December 1 $34 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2018 on its books in the amount of a. $45,000. b. $37,500. c. $12,500. d. $ 7,500.

c

On January 1, 2018, Trent Company granted Dick Williams, an employee, an option to buy 400 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5,400. Williams exercised his option on September 1, 2018, and sold his 400 shares on December 1, 2018. Quoted market prices of Trent Co. stock during 2018 were: January 1 $30 per share September 1 $36 per share December 1 $40 per share The service period is for two years beginning January 1, 2018. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2018 on its books in the amount of a. $6,000. b. $5,400. c. $2,700. d. $0.

c

On January 2, 2018, for past services, Rosen Corp. granted Nenn Pine, its president, 30,000 stock appreciation rights that are exercisable immediately and expire on January 2, 2019. On exercise, Nenn is entitled to receive cash for the excess of the market price of the stock on the exercise date over the market price on the grant date. Nenn did not exercise any of the rights during 2018. The market price of Rosen's stock was $30 on January 2, 2018, and $45 on December 31, 2018. As a result of the stock appreciation rights, Rosen should recognize compensation expense for 2018 of a. $0. b. $180,000. c. $450,000. d. $900,000.

c

On March 1, 2018, Ruiz Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2038. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2018, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2018 as paid-in capital from stock warrants? a. $73,600 b. $85,200 c. $104,000 d. $100,000

c

On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Marly should record the bonds with a a. discount of $100,000. b. discount of $25,000. c. discount of $28,000. d. premium of $75,000.

c

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Payne should credit Paid-in Capital from Stock Warrants for a. $57,600. b. $60,000. c. $61,800. d. $105,000.

c

Shipley Corporation had net income for the year of $720,000 and a weighted average number of common shares outstanding during the period of 250,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($3,000,000), carry a 7% interest rate, and are convertible into 50,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are a. $1.98 b. $2.68. c. $2.82. d. $3.10.

c

The distribution of stock rights to existing common stockholders will increase paid-in capital at the date of issuance vs. date of exercise a. Yes Yes b. Yes No c. No Yes d. No No

c

The following information is available for Barone Corporation: January 1, 2018 Shares outstanding 4,000,000 April 1, 2018 Shares issued 640,000 July 1, 2018 Treasury shares purchased 240,000 October 1, 2018 Shares issued in a 100% stock dividend 4,400,000 The number of shares to be used in computing earnings per common share for 2018 is a. 9,041,600. b. 8,760,000. c. 8,720,000. d. 5,460,000.

c

Warrants exercisable at $20 each to obtain 80,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by a. 80,000. b. 64,000. c. 16,000. d. 20,000.

c

Weiser Corp. on January 1, 2015, granted stock options for 60,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $630,000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2019. The amount of compensation expense Weiser should record for 2017 under the fair value method is a. $0. b. $105,000. c. $210,000. d. $315,000.

c

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? a. Decrease and no effect b. Increase and no effect c. Decrease and increase d. Increase and decrease

c

Which of the following is not a characteristic of a noncompensatory stock option plan? a. Substantially all full-time employees may participate on an equitable basis. b. The plan offers no substantive option feature. c. Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company. d. Discount from the market price of the stock no greater than would be reasonable in an offer of stock to stockholders or others.

c

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

c

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably a. zero b. calculated by the excess of the proceeds over the face amount of the bonds. c. equal to the market value of the warrants. d. based on the relative market values of the two securities involved.

d

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.

d

Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the a. greater earnings adjustment. b. greater earnings per share adjustment. c. smaller earnings adjustment. d. smaller earnings per share adjustment.

d

Convertible bonds a. have priority over other indebtedness. b. are usually secured by a first or second mortgage. c. pay interest only in the event earnings are sufficient to cover the interest. d. may be exchanged for equity securities.

d

For stock appreciation rights, the measurement date for computing compensation is the date a. the rights mature. b. the stock's price reaches a predetermined amount. c. of grant. d. of exercise.

d

Fugate Company had 1,500,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1,250,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 375,000 shares of common stock at $20 per share. The average market price of Fugate's common stock was $25 during 2018. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2018? a. 2,825,000 b. 2,425,000 c. 2,218,750 d. 2,200,000

d

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,500,000 of 5% convertible bonds outstanding during 2018. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2018 was $600,000 and the income tax rate was 30%. Basic earnings per share for 2018 is (rounded to the nearest penny) a. $2.20. b. $2.42. c. $2.50. d. $2.70.

d

In 2017, Eklund, Inc., issued for $103 per share, 90,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock? a. $1,530,000. b. $1,170,000. c. $2,250,000. d. $2,520,000.

d

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are a. weighted by the number of days outstanding. b. weighted by the number of months outstanding. c. considered outstanding at the beginning of the year. d. considered outstanding at the beginning of the earliest year reported.

d

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the a. preferred dividends in arrears. b. preferred dividends in arrears times (one minus the income tax rate). c. annual preferred dividend times (one minus the income tax rate). d. annual preferred dividend

d

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be a. disregarded. b. added back to net income whether declared or not. c. deducted from net income only if declared. d. deducted from net income whether declared or not.

d

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2017. 150,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2018 $46 per share December 31, 2019 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2018 under the fair value method? a. $2,625,000. b. $1,650,000. c. $1,500,000. d. $ 750,000.

d

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would a. fairly present diluted earnings per share on a prospective basis. b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. d. be antidilutive.

d

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $600,000 of 10% convertible bonds outstanding during 2018. The preferred stock is convertible into 40,000 shares of common stock. During 2018, Lerner paid dividends of $.55 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2018 was $360,000 and the income tax rate was 30%. Basic earnings per share for 2018 is (rounded to the nearest penny) a. $1.25. b. $145. c. $1.50. d. $1.62.

d

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2018. In connection with the acquisition of a subsidiary company in June 2017, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2019, to the former owners of the subsidiary. Marsh paid $200,000 in preferred stock dividends in 2018, and reported net income of $3,400,000 for the year. Marsh's diluted earnings per share for 2018 should be a. $1.42. b. $1.36. c. $1.34. d. $1.28.

d

On January 1, 2018, Ritter Company granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2021 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $180,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2018 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $36,000. c. $40,000. d. $60,000.

d

On January 2, 2018, Farr Co. issued 10-year convertible bonds at 105. During 2018, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2018, cash proceeds from the issuance of the convertible bonds should be reported as a. paid-in capital for the entire proceeds. b. paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. c. a liability for the face amount of the bonds and paid-in capital for the premium over the face amount. d. a liability for the entire proceeds.

d

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when a. the market value of the warrants is not readily available. b. exercise of the warrants within the next few fiscal periods seems remote. c. the allocation would result in a discount on the debt security. d. the warrants issued with the debt securities are nondetachable.

d

Stine Inc. had 1,000,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1,000,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 300,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2018. The number of shares to be used in computing diluted earnings per share for 2018 is a. 2,240,000 b. 2,060,000 c. 1,740,000 d. 1,560,000

d

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

d

Terry Corporation had 800,000 shares of common stock outstanding at December 31, 2018. In addition, it had 150,000 stock options outstanding, which had been granted to certain executives, and which gave them the right to purchase shares of Terry's stock at an option price of $37 per share. The average market price of Terry's common stock for 2018 was $50. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2018? a. 800,000 b. 852,703 c. 911,000 d. 839,000

d

The conversion of bonds is most commonly recorded by the a. incremental method. b. proportional method. c. market value method. d. book value method.

d

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 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.

d

When computing diluted earnings per share, convertible bonds are a. ignored. b. assumed converted whether they are dilutive or antidilutive. c. assumed converted only if they are antidilutive. d. assumed converted only if they are dilutive.

d

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 value of the warrants, the excess should be credited to a. additional paid-in capital from stock warrants. b. retained earnings. c. a liability account. d. premium on bonds payable.

d

Which of the following is not a characteristic of a noncompensatory stock purchase plan? a. It is open to almost all full-time employees. b. The discount from market price is small. c. The plan offers no substantive option feature. d. It is not open to almost all full-time employees

d