Intermedia accounting
Compensation plans that are tied to the achievement of certain targets and are used to motivate key employees are referred to as _____ compensation plans.
Blank 1: executive, management, manager, or performance
Stock appreciation rights may be payable in _____ or _____ .
Blank 1: cash Blank 2: shares or stock
In calculating EPS, preferred stock dividends are subtracted from the numerator because EPS represents earnings available to _____ shareholders.
Blank 1: common
A strategy that simplifies the determination of whether convertible securities are dilutive is to compare their _____ effect on earnings per share.
Blank 1: incremental
Which of the following is correct regarding stock options and other share-based plans?
They frequently specify a performance or market condition.
Which of the following factors (each considered independently) will tend to increase the value of stock options? (Select all that apply.)
a longer option term increases in the market price of the underlying stock volatility of the stock price
In calculating diluted EPS under the treasury stock method, one component of the proceeds from the exercise of options include
cash received at exercise
Share-based plans typically are grouped into two major categories based on the conditions that must be met by employees in order to receive the benefits of the award. These categories are
market-based plans performance-based plans.
When restrictions are lifted on restricted stock units for par value stock, paid-in capital restricted stock is replaced by (Select all that apply.) paid-in capital - excess of par compensation expense common stock
paid-in capital - excess of par common stock
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. On the date of grant, the estimated value of the options is $6 per option. During 20X4, when the market value of the stock is $30 per share, 9,000 stock options were exercised. Utta Corp. should recognize this event by debiting paid-in capital in excess of par for $171,000. paid-in capital—stock options for $54,000. cash for $180,000. loss on stock options for 9,000.
paid-in capital—stock options for $54,000. cash for $180,000.
Falken Company awards 1,000 shares of common stock to Robert Small. The shares are restricted and require that Robert remains with the company for at least 2 more years. The current market price of the shares is $15 per share. Total compensation associated with this restricted stock award is Multiple choice question. $0. $7,500. $15,000.
$15,000.
Fuller Corp. has 10,000 options outstanding that allow employees to purchase each share of stock for $10. The market price of the stock is $14. The intrinsic value of the related options is
$4 per share.
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.
Pfeffer Company reports net income of $360 million for 20X1; the company's tax rate is 40%. At the beginning of the year, 200,000 common shares were outstanding. On August 1, the company issued an additional 120,000 shares. Weighted-average shares will be
250,000.
Salt Company reports net income of $360 million for 2017; the company's tax rate is 40%. At the beginning of the year, 200 million common shares were outstanding. On July 1, Salt sold an additional 80 million shares and on October 1 distributed a 10% stock dividend. On December 1, the company reacquired 24 million of its outstanding shares. The company's weighted-average shares for the purpose of calculating basic EPS will be
262 million.
Vogel Corp.'s denominator for calculating diluted EPS is 57,300 weighted-average shares. Included in the denominator were 5,000 shares related to convertible preferred stocks assumed to have been converted. If the convertible preferred stock had actually been converted, the weighted-average shares for purposes of diluted EPS would have been Multiple choice question.
57,300 shares.
Which of the following will qualify a company for having a simple capital structure for the purpose of earnings per share?
A company that has no outstanding securities that could potentially dilute EPS.
___ ____plans give employees the choice to purchase a specified number of shares of the firm's stock at a specified price during a specified period of time.
Blank 1: Stock Blank 2: option
Securities that upon conversion or exercise of potential common shares would increase EPS are referred to as ______ securities.
Blank 1: antidilutive
The benefit the holder of an option would realize by exercising the options rather than buying the underlying stock directly is referred to as ___ value.
Blank 1: intrinsic
Option values include the following essential components: a(n) _____ value and a(n) ____ value.
Blank 1: intrinsic Blank 2: time
The way we take into account the dilutive effect of stock options is referred to as the _____ stock method.
Blank 1: treasury
The way we take into account the dilutive effect of stock options is referred to as the ____stock method.
Blank 1: treasury
Which of the following strategies will simplify the determination of whether convertible securities are dilutive or antidilutive to EPS?
Comparing the incremental effect of the conversion.
Which of the following potential common shares may be included in the calculation of diluted EPS, but not basic EPS? Outstanding common shares Contingent issuable shares Convertible securities Stock options Restricted stock
Contingent issuable shares Convertible securities Stock options Restricted stock
Which of the following must be presented in a company's financial statements (which include the financial statement notes), assuming that the related financial statement items exist for that company? (Select all that apply.)
EPS—net income EPS—discontinued operations EPS—income from continuing operations
Which of the following is a likely advantages of employee share purchase plans for employers?
Increased employee loyalty to the company.
Which of the following statements regarding the prevalence of stock option awards is correct?
Many large and medium-size companies grant stock options.
Which of the following shares may be included in the calculation of basic EPS?
Outstanding common shares
Which of the following are common types of restricted stock plans? Restricted stock awards Restricted stock units Restricted stock rights Restricted stock debentures
Restricted stock awards Restricted stock units
Which of the following are common types of restricted stock plans? (Select all that apply.) Restricted stock rights Restricted stock units Restricted stock debentures Restricted stock awards
Restricted stock units Restricted stock awards
Which of the following can be used to satisfy SARs awards? (Select all that apply.)
Shares Cash
Which of the following are likely advantages of employee share purchase plans for employees? (Select all that apply.)
The absence of brokerage fees to purchase the shares. A discount on the purchase price of the shares.
Which of the following are facts or conditions that are specifically set forth in stock option plans? The maximum number of shares option holders may purchase The minimum number of shares option holders must purchase The time period during which option holders may purchase shares The price at which option holders may purchase shares
The maximum number of shares option holders may purchase The time period during which option holders may purchase shares The price at which option holders may purchase shares
What factors would affect the calculation of diluted EPS if convertible bonds are assumed to have been converted into common stock of the issuing company? The numerator would reflect the after-tax savings of interest. The denominator would reflect the number of bonds assumed converted. The denominator would reflect the additional common shares assumed issued. The numerator would reflect the pretax savings of interest.
The numerator would reflect the after-tax savings of interest. The denominator would reflect the additional common shares assumed issued.
What condition must be met to include contingent issuable shares in the calculation of diluted EPS?
The required condition already is being met.
Which of the following scenarios will increase stockholders' equity?
The sale of new shares
Which of the following is correct regarding the nature of restricted stock?
The shares typically are contingent on the continued employment of the awardee.
Which of the following statements regarding the role of antidilutive securities in the calculation of EPS is correct?
They are ignored when calculating both basic and diluted EPS.
Which of the following represent typical goals of executive compensation plans? (Select all that apply.) To reduce reported net income. To provide compensation to certain employees. To create performance incentives for certain employees. To significantly reduce corporate tax obligations.
To provide compensation to certain employees. To create performance incentives for certain employees.
True or false: Stock options have become an integral part of most medium and large companies. True false question. True False
True
Stock options give employees the choice to purchase ________ during a specific time period.
a specified number of shares of the firm's stock at a specified price
Employee share purchase plans typically allow ______ to purchase company shares at favorable terms.
all employees
Vested restricted stock awards are (Select all that apply.)
already outstanding. included in the denominator of basic EPS.
Horst Company has 50,000 stock options outstanding. The option exercise price is $13 per share, the average market price of the stock was $12 per share during the year, and the end-of-year stock price was $14. For the purpose of calculating EPS, these stock options are
antidilutive.
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. On the date of grant, the estimated value of the options is $6 per option. During 20X4, 9,000 stock options were exercised. Utta Corp. should recognize this event by crediting common stock for $9,000. paid-in capital in excess of par for $225,000. paid-in capital from stock options for $171,000. common stock for $180,000.
common stock for $9,000. paid-in capital in excess of par for $225,000.
Which of the following would prevent Norbert Company from having a simple capital structure for the purpose of reporting EPS?
convertible preferred stocks
Which of the following may result in potential common shares? convertible preferred stocks convertible bonds nonconvertible preferred stocks common stocks authorized nonconvertible bonds
convertible preferred stocks convertible bonds
Marian Company granted restricted stock units for its par value stock to its top executives. When the restriction is lifted, Marian should (Select all that apply.) credit paid-in capital in excess of par. debit paid-in capital in excess of par. credit paid-in capital—restricted stock. debit paid-in capital—restricted stock. credit common stock.
credit paid-in capital in excess of par. debit paid-in capital—restricted stock. credit common stock.
An actual conversion of dilutive convertible securities will (Select all that apply.)
decrease the reported amount of basic EPS. not affect the reported amount of diluted EPS.
Contingent issuable shares may be included in the calculation of
diluted EPS.
Which of the following accounting numbers is reported most frequently by the media?
earnings per share
Investors' desire to focus on one number that may summarize a company's performance may explain the importance of
earnings per share.
Plans that permit all employees to buy shares directly from their company at favorable prices are referred to as
employee share purchase plans.
Falcon Company grants stock options to its upper and middle management employees. The options vest over a 4-year period, with 25% exercisable after 1 year, 25% after 2 years, another 25% after 3 years, and the remaining 25% after 4 years. This is an example of
graded vesting.
Which of the following factors (each considered independently) will tend to lower the value of stock options? (Select all that apply.)
higher dividends a higher exercise price
Warrants, options, and rights are antidilutive if the exercise price is
higher than the stocks' average market price.
The goal of diluted EPS is to report the _____ potential dilution that might result from the conversion or exercise of securities and equity contracts.
highest
The method that assumes that a conversion into common stock occurred at the later of the beginning of the period or the time the convertible security is issued is referred to as the ____ method.
if converted
Restricted stock awards are
included in the calculation of EPS if unvested.
Vested restricted stock awards are (Select all that apply.)
included in the denominator of basic EPS. already outstanding.
Antidilutive securities are excluded from the calculation of EPS because they would
increase EPS.
If convertible bonds are assumed to have been converted, the numerator would be assumed to ____ by the ______ effect of the interest saved.
increase; after-tax
Which of the following are the essential components of option values? market value intrinsic value net realizable value time value
intrinsic value time value
Warrants, options, and rights are dilutive if the exercise price is
lower than the stocks' average market price.
Diluted EPS should be the
lowest possible EPS.
Total compensation associated with restricted stock awards typically is equal to the shares' par value. market price at grant date of the award. market value at time of the removal of the restriction.
market price at grant date of the award.
When restrictions are lifted on restricted stock units for par value stock, paid-in capital restricted stock is replaced by paid-in capital - excess of par compensation expense common stock
paid-in capital - excess of par common stock
On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. The estimated value of the options is $6 per option. During 20X4, 9,000 stock options were exercised. In 20X5, the remaining stock options expire. When the options expire, Utta should credit
paid-in capital—expired stock options for $6,000.
When a company reacquires its own shares, and weighted-average shares are calculated for the purpose of determining EPS, the reacquired shares that are subtracted from the weighted-average calculation are weighted for the
period that they are not outstanding.
Securities that may become common shares in the future are considered
potential common shares.
Which of the following are subtracted when determining earnings available to common shareholders?
preferred stock dividends
The treasury stock method takes into account the dilutive effect of stock options and assumes that the proceeds from the exercise of options are used to
purchase treasury shares.
Compensation relating to stock option grants should be
recognized over the service period for which employees receive options.
For the purpose of deriving EPS, securities are considered dilutive if they are capable of
reducing earnings per share.
Share-based plans that requires that the awardee continue to be employed by the granting company are typically referred to as stock options. restricted stock plans. stock appreciation rights. defined benefit pension plans.
restricted stock plans.
Earnings per share is reported very frequently in the financial press because it
tends to summarize the company's performance.
The "if converted method" assumes that convertible securities were converted into common stock at what point?
the beginning of the current period
Donald Company grants stock options to certain employees. On the date of grant, Donald should measure total compensation based on
the fair value of the options.
In calculating diluted EPS, which of the following restricted stock awards is included in the calculation?
unvested restricted stock awards only
Which of the following common or potential common shares must be considered for inclusion in basic EPS?
vested restricted stock awards
The two components of the time value relating to options are the
volatility value. effect of the time value of money.
Proceeds under the treasury stock method may include amounts received under the hypothetical exercising of the options. tax benefits derived from nonqualified stock options. total compensation from nonvested awards. the current market value of the stocks assumed to have been acquired with the options.
amounts received under the hypothetical exercising of the options. total compensation from nonvested awards.
