Intermediate Accounting II Chapter 16 Quiz

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 shareDecember 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?

$500,000

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

$1.28

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

$2.10

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

credit of $217,600 to Paid-in Capital in Excess of Par

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?

$120,000 decrease

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 $30December 31, 2018 50 For 2018, should recognize compensation expense under the fair value method of

$175,000

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

$2,400

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

$782,800

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?

$82,000

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?

858,000