16&17

Which of the following is not a characteristic of an employee stock-purchase plan?

It is not open to almost all full-time employees.

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes

a debit to Debt Investments at $315,000.

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service.

In accounting for investments in debt securities,

any discount or premium is amortized.

Which of the following is not correct in regard to trading securities?

bility to hold the security to maturity. positive intent. the security must be a debt security.

Investments in debt securities are generally recorded at

cost including brokerage and other fees

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

false

Under the intrinsic value method, compensation expense resulting from an incentive stock option is

not recognized if the market price does not exceed the option price at the date of grant.

Unrealized holding gains or losses which are recognized in income are from debt securities classified as

trading

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

On January 1, 2020, Riverbed Corporation granted 4,800 options to executives. Each option entitles the holder to purchase one share of Riverbed's $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $66 per share on the date of grant. The fair value of the options at the grant date is $149,000. The period of benefit is 2 years. Prepare Riverbed's journal entries for January 1, 2020, and December 31, 2020 and 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

1/1/20 no entry 0 No Entry 0 12/31/20 Compensation Expense 74500 Paid-in Capital-Stock Options 74500 12/31/21 Compensation Expense 74500 Paid-in Capital-Stock Options 74500

On January 1, 2021, Coronado Industries granted Tim Telfer, an employee, an option to buy 4500 shares of Coronado 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 $33900. Telfer exercised his option on September 1, 2021, and sold his 4500 shares on December 1, 2021. Quoted market prices of Coronado Co. stock during 2021 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, 2021. As a result of the option granted to Telfer, using the fair value method, Coronado should recognize compensation expense for 2021 on its books in the amount of

11300

Sheridan Company on January 1, 2018, granted stock options for 67000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $24 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $624000. The options are exercisable beginning January 1, 2021, provided those key employees are still in Sheridan's employ at the time the options are exercised. The options expire on January 1, 2022. The amount of compensation expense Sheridan should record for 2020 under the fair value method is

208000

In order to retain certain key executives, Sheridan Company granted them incentive stock options on December 31, 2020. 144000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2021 $44 per share December 31, 2022 49 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2021. The Black-Scholes option pricing model determines total compensation expense to be $1508000. What amount of compensation expense should Sheridan recognize as a result of this plan for the year ended December 31, 2021 under the fair value method?

754000

Available-for-sale securities

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are

municipal bonds

Securities which could be classified as held-to-maturity are

paid in capital stock warrants

Stock warrants outstanding should be classified as

Which of the following is not a characteristic of an employee stock-purchase plan?

Unlimited time period permitted for exercise of an option as long as the holder is still employed by the company.

An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a

debit to debt investments

Investments in debt securities should be recorded on the date of acquisition at

fair value plus brokerage fees and other costs incidental to the purchase.

The issuance of warrants arises under all of the following situations except to:

give bondholders the preemptive right to purchase additional stock.

Debt securities that are accounted for at amortized cost, not fair value, are

held-to-maturity debt securities.

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

is granted the option

convertible bonds -

may be exchanged for equity securities

The distribution of stock rights to existing common stockholders will increase paid-in capital at the date of issuance / date of rights

no / yes

If a company offers additional considerations to convertible bondholders in order to encourage conversion, it is called a(an):

sweetener

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

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.

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