Question 1

The adjustment to the weighted-average shares for retired shares is the same as for issuing new shares except:

Accepted Answer

A) The shares are deducted rather than added. 
B) The shares are added rather than deducted. 
C) The shares are treated as being acquired at the end of the year. 
D) The shares are treated as being acquired at the beginning of the year. 
A) The shares are deducted rather than added. 
B) The shares are added rather than deducted. 
C) The shares are treated as being acquired at the end of the year. 
D) The shares are treated as being acquired at the beginning of the year.

Question 2

On January 1, 2009, Black Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Black initially estimates that it is probable the goal will be achieved. In 2010, after one year, Black estimates that it is not probable that divisional revenue will increase by 6% in three years. Ignoring taxes, what is the effect on earnings in 2010?

Accepted Answer

A) $200,000 decrease 
B) $200,000 increase 
C) $400,000 increase 
D) no effect In 2009, the estimate of the total compensation would be:
200,000 $6 = $1,200,000
One-third of that amount, or $400,000, will be recorded in 2009.In 2010, the new estimate of the total compensation would change to zero.In that case, Black would reverse the $400,000 expensed in 2009 because no compensation can be recognized for options that don't vest due to performance targets not being met, and that's the new expectation.So, earnings are increased (reduction in compensation expense) by that amount. 
A) $200,000 decrease 
B) $200,000 increase 
C) $400,000 increase 
D) no effect In 2009, the estimate of the total compensation would be:
200,000 $6 = $1,200,000
One-third of that amount, or $400,000, will be recorded in 2009.In 2010, the new estimate of the total compensation would change to zero.In that case, Black would reverse the $400,000 expensed in 2009 because no compensation can be recognized for options that don't vest due to performance targets not being met, and that's the new expectation.So, earnings are increased (reduction in compensation expense) by that amount.

Question 3

In computing diluted earnings per share, the treasury stock method is used for:

Accepted Answer

A) Stock warrants. 
B) Stock splits. 
C) Reverse stock splits. 
D) Convertible preferred stock. 
A) Stock warrants. 
B) Stock splits. 
C) Reverse stock splits. 
D) Convertible preferred stock.

Question 4

If a company reports an extraordinary gain, EPS must be disclosed for both income from ordinary continuing operations and net income.

Accepted Answer

A) True 
 B)False

Question 5

The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?

Accepted Answer

@#IMG-DLM& Requirement 1
Whether an incentive plan

Question 6

Purple Cab Company had 50,000 shares of common stock outstanding on January 1, 2009. On April 1, 2009, the company issued 20,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The end-of-year market price of common stock was $11 while the average price for the year was $12. The company reported net income in the amount of $269,915 for 2009. What is the basic earnings per share?

Accepted Answer

A) $4.10. 
B) $3.86. 
C) $3.60. 
D) $4.15.$269,915 / (50,000 + (20,000 9/12)) = $4.15 
A) $4.10. 
B) $3.86. 
C) $3.60. 
D) $4.15.$269,915 / (50,000 + (20,000 9/12)) = $4.15

Question 7

To encourage employee ownership of the company's common shares, KL Corp. permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During May, employees purchased 10,000 shares at a time when the market price of the shares on the New York Stock Exchange was $15 per share. KL will record compensation expense associated with the May purchases of:

Accepted Answer

A) $ 0 
B) $ 15,000 
C) $ 22,500 
D) $150,000 
A) $ 0 
B) $ 15,000 
C) $ 22,500 
D) $150,000

Question 8

Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock.

Accepted Answer

A) True 
 B)False

Question 9

What is Falwell's basic earnings per share for 2009, rounded to the nearest cent?

Accepted Answer

A) $3.14 
B) $4.40 
C) $5.00 
D) None of these is correct. 
A) $3.14 
B) $4.40 
C) $5.00 
D) None of these is correct.

Question 10

A simple capital structure might include:

Accepted Answer

A) Stock rights. 
B) Convertible bonds. 
C) Nonconvertible preferred stock. 
D) Stock purchase warrants. 
A) Stock rights. 
B) Convertible bonds. 
C) Nonconvertible preferred stock. 
D) Stock purchase warrants.

Question 11

The Peach Corporation provides restricted stock to certain executives. Under the plan, the company granted 30 million shares on January 1, 2009, which vest in four years. The fair value of the shares is $14. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the restricted stock.
2. Prepare the appropriate journal entry (if any) to record the award of restricted stock on January 1, 2009.
3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2009.

Accepted Answer

The answer of The Peach Corporation provides restricted stock to...

Question 12

Executive stock options should be reported as compensation expense:

Accepted Answer

A) Using the intrinsic value method. 
B) Using the fair value method. 
C) Using either the fair value method or the intrinsic value method. 
D) Only on rare occasions. 
A) Using the intrinsic value method. 
B) Using the fair value method. 
C) Using either the fair value method or the intrinsic value method. 
D) Only on rare occasions.

Question 13

How many types of potential common shares must a corporation have in order to be said to have a complex capital structure?

Accepted Answer

A) 3. 
B) 2. 
C) 1. 
D) 0. 
A) 3. 
B) 2. 
C) 1. 
D) 0.

Question 14

The Burford Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2009, that permit executives to acquire 12 million of the company's $1 par value common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate model, is $3 per option. No forfeitures are anticipated. Ignore taxes.
Required:
(1.) Determine the total compensation cost pertaining to the options, assuming Burford chooses to follow the FASB's accounting approach for fixed compensation plans. Show calculations.
(2.) Prepare the appropriate journal entry (if any) to record the award of options on January 1, 2009.
(3.) Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2009.

Accepted Answer

The answer of The Burford Corporation provides an executive stock...

Question 15

M, Inc. supplies consumer products used in the U.S. and other markets. In its 2009 Annual Report to Shareholders, M, Inc. disclosed the following footnote about its EPS:
"The consolidated financial statements are presented in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options and upon the assumed conversion of the Company's Convertible Notes in fiscal 2009 as if conversion to common shares had occurred at the beginning of the fiscal year. Earnings have also been adjusted for interest expense on the Convertible Notes in fiscal 2009."
Explain why M mentioned the adjustment in the last sentence of the footnote.

Accepted Answer

In determining its diluted EPS, M assume

Question 16

When the income statement includes separately reported items such as discontinued operations or extraordinary items, which amounts require per share presentation?

Accepted Answer

EPS data (basic and diluted) must be pre

Question 17

Preferred dividends are subtracted from earnings when computing earnings per share whether or not the dividends are declared or paid if the preferred stock is:

Accepted Answer

A) Callable. 
B) Convertible. 
C) Participating. 
D) Cumulative. 
A) Callable. 
B) Convertible. 
C) Participating. 
D) Cumulative.

Question 18

Why are preferred dividends deducted from net income when calculating EPS?

Accepted Answer

Requirement 1
Other potential common sha

Question 19

Stock option plans give employees the option to purchase (a) a specified number of shares of the firm's stock, (b) at a specified price, (c) during a specified period of time. One of the most heated controversies in standard-setting history has been the debate over the amount of compensation to be recognized as expense for stock options. At issue is how the value of stock options is measured, which for most options determines whether any expense at all is recognized. The opposition included corporate executives, auditors, members of Congress, and the SEC.
Required:
Describe the primary objections of critics of the FASB's eventually successful attempt to require expensing of the fair value of the options.

Accepted Answer

Critics based their opposition on one or

Question 20

On January 2, 2009, L Co. issued at par $20,000 of 4% bonds convertible in total into 1,000 shares of L's common stock. No bonds were converted during 2009. Throughout 2009, L had 1,000 shares of common stock outstanding. L's 2009 net income was $2,000. L's income tax rate is 50%.
No potential common shares other than the convertible bonds were outstanding during 2009.
L's diluted earnings per share for 2009 would be

Accepted Answer

A) $1.00. 
B) $1.20. 
C) $1.40. 
D) $2.00. 
A) $1.00. 
B) $1.20. 
C) $1.40. 
D) $2.00.

The adjustment to the weighted-average shares for retired shares is the same as for issuing new shares except:

In computing diluted earnings per share, the treasury stock method is used for:

If a company reports an extraordinary gain, EPS must be disclosed for both income from ordinary continuing operations and net income.

The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?

Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock.

What is Falwell's basic earnings per share for 2009, rounded to the nearest cent?

A simple capital structure might include:

Executive stock options should be reported as compensation expense:

How many types of potential common shares must a corporation have in order to be said to have a complex capital structure?

When the income statement includes separately reported items such as discontinued operations or extraordinary items, which amounts require per share presentation?

Preferred dividends are subtracted from earnings when computing earnings per share whether or not the dividends are declared or paid if the preferred stock is:

Why are preferred dividends deducted from net income when calculating EPS?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement and Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Operational Assets: Acquisition and Disposition

Operational Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Accounting Changes

The Statement of Cash Flows

Appendix a Derivatives

Filters

Exam 19: Share-Based Compensation and Earnings Per Share

The adjustment to the weighted-average shares for retired shares is the same as for issuing new shares except:

In computing diluted earnings per share, the treasury stock method is used for:

If a company reports an extraordinary gain, EPS must be disclosed for both income from ordinary continuing operations and net income.

The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?

Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock.

What is Falwell's basic earnings per share for 2009, rounded to the nearest cent?

A simple capital structure might include:

Executive stock options should be reported as compensation expense:

How many types of potential common shares must a corporation have in order to be said to have a complex capital structure?

When the income statement includes separately reported items such as discontinued operations or extraordinary items, which amounts require per share presentation?

Preferred dividends are subtracted from earnings when computing earnings per share whether or not the dividends are declared or paid if the preferred stock is:

Why are preferred dividends deducted from net income when calculating EPS?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement and Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Operational Assets: Acquisition and Disposition

Operational Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Accounting Changes

The Statement of Cash Flows

Appendix a Derivatives

Filters