第16章817-836页
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Questions•
817
QUESTIONS1.What is meant by a dilutive security?2.Briefly explain why corporations issue convertiblesecurities.
3.Discuss the similarities and the differences between con-vertible debt and debt issued with stock warrants.
4.Plantagenet Corp. offered holders of its 1,000 convertiblebonds a premium of $160 per bond to induce conversioninto shares of its common stock. Upon conversion of allthe bonds, Plantagenet Corp. recorded the $160,000 pre-mium as a reduction of paid-in capital. Comment onPlantagenet’s treatment of the $160,000 “sweetener.”
5.Explain how the conversion feature of convertible debthas a value (a) to the issuer and (b) to the purchaser.
6.What are the arguments for giving separate accountingrecognition to the conversion feature of debentures?
7.Four years after issue, debentures with a face value of$1,000,000 and book value of $960,000 are tendered forconversion into 80,000 shares of common stock immedi-ately after an interest payment date. At that time the mar-ket price of the debentures is 104, and the common stockis selling at $14 per share (par value $10). The companyrecords the conversion as follows.
Bonds Payable1,000,000Discount on Bonds Payable40,000Common Stock800,000Paid-in Capital in Excess of Par160,000
Discuss the propriety of this accounting treatment.8.On July 1, 2007, Roberts Corporation issued $3,000,000of 9% bonds payable in 20 years. The bonds includedetachable warrants giving the bondholder the right topurchase for $30 one share of $1 par value common stockat any time during the next 10 years. The bonds weresold for $3,000,000. The value of the warrants at the timeof issuance was $200,000. Prepare the journal entry torecord this transaction.
9.What are stock rights? How does the issuing companyaccount for them?
10.Briefly explain the accounting requirements for stockcompensation plans under Statement of Financial Account-ing Standards No. 123(R).
11.Weiland Corporation has an employee stock purchaseplan which permits all full-time employees to purchase10 shares of common stock on the third anniversary oftheir employment and an additional 15 shares on eachsubsequent anniversary date. The purchase price is setat the market price on the date purchased and no com-mission is charged. Discuss whether this plan would beconsidered compensatory.
12.What date or event does the profession believe shouldbe used in determining the value of a stock option? Whatarguments support this position?
13.Over what period of time should compensation cost beallocated?
14.How is compensation expense computed using the fairvalue approach?
15.At December 31, 2007, Amad Company had 600,000 sharesof common stock issued and outstanding, 400,000 of whichhad been issued and outstanding throughout the year and200,000 of which were issued on October 1, 2007. Net in-come for 2007 was $3,000,000, and dividends declared onpreferred stock were $400,000. Compute Amad’s earningsper common share. (Round to the nearest penny.)
16.What effect do stock dividends or stock splits have onthe computation of the weighted-average number ofshares outstanding?
17.Define the following terms.(a)Basic earnings per share.(b)Potentially dilutive security.(c)Diluted earnings per share.(d)Complex capital structure.(e)Potential common stock.18.What are the computational guidelines for determiningwhether a convertible security is to be reported as partof diluted earnings per share?
19.Discuss why options and warrants may be consideredpotentially dilutive common shares for the computationof diluted earnings per share.
20.Explain how convertible securities are determined to be potentially dilutive common shares and how thoseconvertible securities that are not considered to be po-tentially dilutive common shares enter into the determi-nation of earnings per share data.
21.Explain the treasury stock method as it applies to op-tions and warrants in computing dilutive earnings pershare data.
22.Earnings per share can affect market prices of commonstock. Can market prices affect earnings per share? Explain.
23.What is meant by the term antidilution? Give an example.24.What type of earnings per share presentation is requiredin a complex capital structure?*25.What are the advantages of using restricted stock to com-
pensate employees?*26.How is antidilution determined when multiple securi-
ties are involved?
Note:All asteriskedQuestions, Brief Exercises, Exercises, and Concepts for Analysisrelate to material contained in the appendixes to the chapter.
