CH 16

Which of the following differs in GAAP and IFRS?

Accounting for convertible debt

Which of the following is not a characteristic of a noncompensatory stock purchase plan?

All of these are characteristics: *It is open to almost all full-time employees *The plan offers no substantive option feature. *The discount from market price is small.

Under IFRS, what is recorded as compensation expense for all employee share-purchase plans?

Amount of discount

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)?

Annual preferred dividend

Under IFRS, how are convertible debt recorded?

Convertible debt is separated into equity component and debt component

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?

Decrease and increase

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

Discount on Bonds Payable.

With regard to recognizing stock-based compensation

IFRS and U.S. GAAP follow the same model

With regard to contracts that can be settled in either cash or shares

IFRS requires that share settlement must be used

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

Issue Date Exercise Date -No -Yes

Which of the following is an advantage of a restricted-stock plan?

It creates new job opportunities in a company

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

None of these answers are correct.

Stock warrants outstanding should be classified as

None of these answers are correct: *reductions of capital contributed in excess of par value *assets. *liabilities.

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

Ownership interest consisting solely of common stock

Which of the following is not a characteristic of a noncompensatory stock option plan?

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

On January 2, 2014, Farr Co. issued 10-year convertible bonds at 105. During 2014, 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, 2014, cash proceeds from the issuance of the convertible bonds should be reported as

a liability for the entire proceeds.

Compensation expense resulting from a compensatory stock option plan is generally

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

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

are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share

When computing diluted earnings per share, convertible bonds are

assumed converted only if they are dilutive

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably

based on the relative market values of the two securities involved.

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

be antidilutive

The conversion of bonds is most commonly recorded by the

book value method.

The conversion of preferred stock is recorded by the

book value method.

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are

considered outstanding at the beginning of the earliest year reported

Dilutive convertible securities must be used in the computation of

diluted earnings per share only

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 - yes anti dilutive - no

A company estimates the fair value of SARs, using an option-pricing model, for

incentive stock option plan.

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.

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.

For stock appreciation rights, the measurement date for computing compensation is the date

of exercise.

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 market value of the warrants, the excess should be credited to

premium on bonds payable.

Due to the importance of earnings per share information, it is required to be reported by all

public companies - yes nonpublic - no

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

reflected currently in income, but not as an extraordinary item

An executive pays no taxes at the time of exercise in a(an)

share-based liability awards

Antidilutive securities

should be ignored in all earnings per share calculations.

Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the

smaller earnings per share adjustment

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.

A company uses income from continuing operations to determine whether potential common stock is dilutive or antidilutive, and this is referred to as

the control number

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

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

the warrants issued with the debt securities are nondetachable

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

treated as a direct reduction of retained earnings

When $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond, the IFRS journal entry will include a debit of

$800,000 to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds