Question 1

What is an antidilutive security?

Accepted Answer

An antidilutive security is one whose te

Question 2

What is the "if converted method"?

Accepted Answer

The "if converted method" is used to ass

Question 3

When several types of potential common shares exist, the one that enters the computation of diluted EPS first is the one with the:

Accepted Answer

A) Highest incremental effect. 
B) Higher numerator. 
C) Median incremental effect. 
D) Lowest incremental effect. 
A) Highest incremental effect. 
B) Higher numerator. 
C) Median incremental effect. 
D) Lowest incremental effect.

Question 4

DJ Co. is a calendar-year firm with 120 million common shares outstanding throughout 2013. As part of its executive compensation plan, at January 1, 2012, the company had issued 12 million executive stock options permitting executives to buy 12 million shares of stock for $10 each within the next eight years, but not prior to January 1, 2015. The fair value of the options was estimated on the grant date to be $3 per option. The stock options qualify for tax purposes as an incentive plan. The company's net income was $480 million in 2013. Its income tax rate is 40%. The average market price of the stock during 2013 was $12 per share.
Required:
Determine basic and diluted earnings per share (rounded to two decimal places) for DJ in 2013.

Accepted Answer

(amounts in millions, except per share a

Question 5

During 2013, Quattro entered into the following transactions relating to shareholders' equity. The corporation was authorized to issue 20 million common shares, $1 par per share.
Net income for 2013 was $110 million.
Jan. 2: Issued 10 million common shares for cash.
Jan. 3: Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2013 based on the earnings of Quattro in 2013. If net income exceeds $100 million, the president will receive 1 million shares; 2 million shares if net income exceeds $120 million.
Required:
Compute basic and diluted EPS for 2013.

Accepted Answer

($ in millions, except per share amount)

Question 6

Steverino Inc. offers a restricted stock award plan to its vice presidents. On January 1, 2013, the corporation granted 10 million of its $5 par common shares, subject to forfeiture if employment is terminated within two years. The common shares have a market value of $10 per share on the date the award is granted.
Required:
1. Assume that no shares are forfeited. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entries related to the restricted stock through December 31, 2014.

Accepted Answer

($ in mill

Question 7

At December 31, 2013, Hansen Corporation had 50,000 shares of common stock and 5,000 shares of 6%, $100 par cumulative preferred stock outstanding. No dividends were declared or paid in 2013. Net income was reported as $200,000. What is basic EPS?

Accepted Answer

A) $4.00. 
B) $3.40. 
C) $3.64. 
D) $4.02. 
A) $4.00. 
B) $3.40. 
C) $3.64. 
D) $4.02.

Question 8

Martin 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 10% discount. During 2013, employees purchased 8 million shares; during this same period, the shares had a market price of $15 per share at the end of the year. Martin's 2013 pretax earnings will be reduced by:

Accepted Answer

A) $0. 
B) $12 million. 
C) $108 million. 
D) $120 million. 
A) $0. 
B) $12 million. 
C) $108 million. 
D) $120 million.

Question 9

When we assume conversion of convertible bonds, the numerator is increased by:

Accepted Answer

A) The amount of after-tax interest. 
B) The gross amount of interest. 
C) The weighted-average interest. 
D) The amount of cash paid during the current year for interest. 
A) The amount of after-tax interest. 
B) The gross amount of interest. 
C) The weighted-average interest. 
D) The amount of cash paid during the current year for interest.

Question 10

Under U.S. GAAP, a deferred tax asset for stock options:

Accepted Answer

A) Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense. 
B) Is the portion of the options' intrinsic value earned to date times the tax rate. 
C) Is the tax rate times the fair value of all the options. 
D) Isn't created if the award is "in the money;" that is, it has intrinsic value. 
A) Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense. 
B) Is the portion of the options' intrinsic value earned to date times the tax rate. 
C) Is the tax rate times the fair value of all the options. 
D) Isn't created if the award is "in the money;" that is, it has intrinsic value.

Question 11

What is Rudyard's basic EPS?

Accepted Answer

A) $2.13. 
B) $4.80. 
C) $4.00. 
D) $3.20. 
A) $2.13. 
B) $4.80. 
C) $4.00. 
D) $3.20.

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

The result of a stock split is:

Accepted Answer

A) A larger number of more valuable shares. 
B) An increase in corporate assets. 
C) An increase in shareholders' equity. 
D) A larger number of less valuable shares. 
A) A larger number of more valuable shares. 
B) An increase in corporate assets. 
C) An increase in shareholders' equity. 
D) A larger number of less valuable shares.

Question 14

Fully vested incentive stock options for 100,000 shares of common stock at an exercise price of $50 were outstanding for the entire year. The market price of the stock during the year averaged $56.
Required:
By how many shares will the assumed exercise of these options increase the weighted-average number of shares outstanding when calculating diluted earnings per share?

Accepted Answer

100,000 -

Question 15

Which of the following is not a potential common stock?

Accepted Answer

A) Convertible preferred stock. 
B) Convertible bonds. 
C) Stock rights. 
D) Participating preferred stock. 
A) Convertible preferred stock. 
B) Convertible bonds. 
C) Stock rights. 
D) Participating preferred stock.

Question 16

Which of the following will require a recalculation of weighted-average shares outstanding for all years presented?

Accepted Answer

A) Stock dividends and stock splits. 
B) Stock dividends but not stock splits. 
C) Stock splits but not stock dividends. 
D) Stock rights. 
A) Stock dividends and stock splits. 
B) Stock dividends but not stock splits. 
C) Stock splits but not stock dividends. 
D) Stock rights.

Question 17

On December 31, 2012, Brisbane Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2013, Brisbane purchased 24,000 shares of common stock on the open market as treasury stock paying $40 per share. Brisbane sold 6,000 treasury shares on September 30, 2013, for $45 per share. Net income for 2013 was $180,905. Also outstanding during the year were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40. The market price of the common shares averaged $50 during 2013.
Required:
Compute Brisbane's basic and diluted earnings per share (rounded to 2 decimal places) for 2013.

Accepted Answer

Basic EPS [$180,905 - (7% x $50 x 30,000

Question 18

XYZ paid $10,000 in dividends in January of the current year to its preferred shareholders. The preferred stock is nonconvertible and noncumulative. The dividend:

Accepted Answer

A) Will be added to the denominator of the earnings per share fraction for the current year. 
B) Will be added to the numerator of the earnings per share fraction for the current year. 
C) Will be subtracted from the numerator of the earnings per share fraction for the current year. 
D) May not affect earnings per share depending on the declaration date. 
A) Will be added to the denominator of the earnings per share fraction for the current year. 
B) Will be added to the numerator of the earnings per share fraction for the current year. 
C) Will be subtracted from the numerator of the earnings per share fraction for the current year. 
D) May not affect earnings per share depending on the declaration date.

Question 19

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 20

On January 1, 2013, Blue 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. Blue initially estimates that it is not probable the goal will be achieved, but in 2014, after one year, Blue estimates that it is probable that divisional revenue will increase by 6% by the end of 2015. Ignoring taxes, what is the effect on earnings in 2014?

Accepted Answer

A) $200,000. 
B) $400,000. 
C) $600,000. 
D) $800,000. 
A) $200,000. 
B) $400,000. 
C) $600,000. 
D) $800,000.

What is an antidilutive security?

What is the "if converted method"?

When several types of potential common shares exist, the one that enters the computation of diluted EPS first is the one with the:

At December 31, 2013, Hansen Corporation had 50,000 shares of common stock and 5,000 shares of 6%, $100 par cumulative preferred stock outstanding. No dividends were declared or paid in 2013. Net income was reported as $200,000. What is basic EPS?

When we assume conversion of convertible bonds, the numerator is increased by:

Under U.S. GAAP, a deferred tax asset for stock options:

What is Rudyard's basic EPS?

Executive stock options should be reported as compensation expense:

The result of a stock split is:

Which of the following is not a potential common stock?

Which of the following will require a recalculation of weighted-average shares outstanding for all years presented?

XYZ paid $10,000 in dividends in January of the current year to its preferred shareholders. The preferred stock is nonconvertible and noncumulative. The dividend:

A simple capital structure might include:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Income Measurement and Profitability Analysis

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, Plant, and Equipment and Intangible 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 Key

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters

Exam 19: Share-Based Compensation and Earnings Per Share

What is an antidilutive security?

What is the "if converted method"?

When several types of potential common shares exist, the one that enters the computation of diluted EPS first is the one with the:

At December 31, 2013, Hansen Corporation had 50,000 shares of common stock and 5,000 shares of 6%, $100 par cumulative preferred stock outstanding. No dividends were declared or paid in 2013. Net income was reported as $200,000. What is basic EPS?

When we assume conversion of convertible bonds, the numerator is increased by:

Under U.S. GAAP, a deferred tax asset for stock options:

What is Rudyard's basic EPS?

Executive stock options should be reported as compensation expense:

The result of a stock split is:

Which of the following is not a potential common stock?

Which of the following will require a recalculation of weighted-average shares outstanding for all years presented?

XYZ paid $10,000 in dividends in January of the current year to its preferred shareholders. The preferred stock is nonconvertible and noncumulative. The dividend:

A simple capital structure might include:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Income Measurement and Profitability Analysis

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, Plant, and Equipment and Intangible 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 Key

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters