Professional Documents
Culture Documents
DI
LUTI
VESECURI
TIESANDEARNI
NGSPERSHARE
TRUE-
FALSE—Di
l
uti
veSecur
it
ies—Concept
ual
Answer No. Descr
ipt
ion
T 1. Conv ertibledebtandI FRSr equirement s.
F 2. Recogni zinggai n/lossondebtconv ersion.
T 3. Repor t
ingaddi ti
onal considerati
ont oencour ageconv ersi
on.
F 4. Exerciseofconv erti
blepreferenceshar es.
F 5. Conv ertiblepreferenceshar esexer cise.
T 6. All
ocat ingpr oceedsbet weendebtanddet achabl
ewar r
ants.
F 7. Account i
ngf ornondet achabl ewar rants.
T 8. I
ntrinsicv alueofashar eopt ion.
F 9. Compensat ionex pensei nfairvaluemet hod.
T 10. Serviceper i
odi nshar eoptionpl ans.
F 11. Account i
ngf ornonex er
ciseofshar eopt i
ons.
F 12. Affectofser vicecondi t
iononcompensat i
onexpense.
T 13. Cumul at iv
epr eferenceshar esandEPS.
F 14. Restatingshar esf orsharedi vi
dendsandshar esplit
s.
T 15. Shar ediv i
dendandwei ghted-averageshar esoutstanding.
F 16. Preferreddi v i
dendsandi ncomef rom conf inui
ngoper ati
ons.
T. 17. Repor t
ingEPSi ncompl excapi talst ructure.
F. 18. Dil
ut i
veshar eopt i
ons.
T 19. Cont i
ngent lyissuabl eshares.
F 20. Repor t
ingEPSf orincomef rom cont inuingoper ati
ons.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Concept
ual
Answer No. Descr
ipt
ion
d 21. Natureofconv ertiblebonds.
d 22. Recor dingconv ersionofbonds.
b 23. Classificationofaddi ti
onal consi derati
on(asweet ener).
S
c 24. Reasonsf ori
ssui ngconv er tibl
edebt .
S
d 25. Account i
ngf orconv erti
bledebtconv er
tedbeforemat uri
ty.
b 26. Conv ertiblebondschar act erist
ics.
d 27. ValuingConv ertiblebonds.
b 28. Conv ertiblepreferenceshar es.
S
d 29. Account i
ngf orconv ersionofpr efer
enceshar es.
b 30. Recor dingconv ersionofpr eferenceshar es.
d 31. Bondsi ssuedwi thdet achabl eshar ewar r
ants.
d 32. Debtequi tyfeaturesofdebti ssuedwi t
hsharewar rants.
P
d 33. Bondsi ssuedwi thdet achabl eshar ewar r
ants.
P
c 34. Distr
ibut ionofshar eright s.
S
b 35. Diff
erencebet weenconv ert i
bledebtandshar ewar r
ants.
c 36. Prepar ationofmemor andum ent ry.
c 37. Adjustmentoft otal compensat ion.
d 38. Charact er i
sti
csofr estri
ct edshar es.
16-2 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
S
c 39. Char
act
eri
sti
csofnoncompensat
oryshar
eopti
onpl
an.
a 40. Measur
ementofcompensat
ioninshar
eopti
on.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Concept
ual
(cont
.)
Answer No. Descr
ipt
ion
c 41. Recognit
ionofcompensat i
onexpensei nashareoptionpl
an.
a 42. Compensat i
onex penseinashar eopti
onplan.
d 43. Employeeshar epurchasepl ans.
a *
44. Compensat i
onex penseinai ncent
iveshar
eappreci
ationr
ight
spl
an.
d *
45. Shareappreci
at i
onright
spl an.
b *
46. I
ncenti
veshar eoptionplan.
b *
47. Share-
basedliabil
it
yawar ds.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
Answer No. Descr
ipt
ion
a 48. Conv ersionofconv erti
blebonds.
b 49. Conv ersionofconv erti
blebonds.
a 50. Exerciseofshar epur chaser ights.
b 51. Conv ersionofconv erti
blebonds.
c 52. Comput ati
onofconv erti
bledebtl i
abil
i
tycomponent .
b 53. Recor di
ngi ssuanceofconv er ti
blebonds.
c 54. Recor di
ngconv ersi
onofconv ert
iblebonds.
a 55. Recor di
ngset tl
ementofbondsatmat urit
y .
b 56. Account ingforinducedconv ersi
onofdebt .
d 57. Recor di
ngi ssuanceofconv er ti
blebonds.
c 58. Recor di
ngr epurchaseofconv erti
blepreferenceshares.
d 59. Conv ersionofconv erti
blepr eferenceshar es.
b 60. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 61. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 62. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 63. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 64. Recor di
ngshar epr emium f rom shar ewar rants.
b 65. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
b 66. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 67. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
b 68. Recor di
ngpai d-incapitalfr
om shar ewar r
ant s.
b 69. Determi necompensat ionexpensei nashar eoptionpl
an.
c 70. Determi necompensat ionexpensei nashar eoptionpl
an.
c 71. I
mpactofshar eopt i
onsonneti ncome.
b 72. Determi necompensat ionexpensei nashar eoptionpl
an.
b 73. Determi necompensat ionexpensei nashar eoptionpl
an.
d 74. Determi necompensat ionexpensei nashar eoptionpl
an.
d 75. Determi nesharepr emi um amounti nashar eoptionpl
an.
c 76. Determi necompensat ionexpensei nashar eoptionpl
an.
c 77. Netincomeef fectinashar eopt ionplan.
c 78. Determi necompensat ionexpensei nashar eoptionpl
an.
c 79. I
mpactofshar eopt i
onsonshar eholders’equity
.
b 80. Determi necompensat ionexpensei nashar eoptionpl
an.
a 81. Determi necompensat ionexpensei nashar eoptionpl
an.
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-3
c 82. I
ssuanceoftr
easur
ysharei
nashar eopt
ionpl
an.
b 83. Computat
ionofcompensat
ionexpensei
nrest
rictedsharepl
an.
d 84. Computat
ionofcompensat
ionexpensei
nshare-purchasepl
an.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
(cont
.)
Answer No. Descr
ipt
ion
b *
85. Compensat
ionexpenser
ecogni
zedi
nfi
rstyearinanSARpl
an.
b *
86. Compensat
ionexpenser
ecogni
zedi
nsecondy eari
nanSARplan.
a *
87. Compensat
ionexpenser
ecogni
zedi
nthi
rdyearinanSARplan.
P
Thesequest
ionsalsoappeari
ntheProbl
em-Solvi
ngSur
viv
alGui
de.
S
Thesequest
ionsalsoappeari
ntheStudyGuide.
*
Thistopi
cisdealtwit
hinanAppendixtothechapter
.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
Answer No. Descr
ipt
ion
d 88. Cashproceedsfrom issuanceofconverti
blebonds.
a 89. Bondissuewithdetachablesharewarrants.
c 90. Compensationexpensei nashareopti
onpl an.
c *
91. Compensationexpenser ecogni
zedinanSARpl an.
MULTI
PLECHOI
CE—Ear
ningsPerShar
e,Concept
ual
Answer No. Descr
ipt
ion
c 92. Si
mpl ecapi t
al structure.
d 93. Comput i
ngEPSf orasi mplecapital
structure.
d 94. Comput at
ionofwei ghted-averagesharesout st
andi
ng.
c 95. Effectoftreasuryshar esonEPS.
S
b 96. Repor t
ingEPSbycompani es.
P
b 97. Dil
utedEPSandconv ersi
onofbonds.
d 98. Dil
utedEPS.
b 99. Dil
utiveconv erti
blesecur it
ies.
a 100. Cumul ativeconv erti
blepreferencesharesi ncomeadjust
ment
.
d 101. Treasuryshar emet hod.
a 102. Treasuryshar emet hod.
b 103. Treasuryshar emet hod.
d 104. Antidi
lutiv
esecur i
ti
es.
d *
105. EPScal culati
onwi t
ht wodi l
utiveconvert
iblesecur
it
ies.
MULTI
PLECHOI
CE—Ear
ningsPerShar
e,Comput
ati
onal
Answer No. Descr
ipt
ion
c 106. Weight
edav er
agenumberofcommonsharesout
standi
ng.
c 107. Weight
edav er
agenumberofcommonsharesout
standi
ng.
b 108. Weight
edav er
agenumberofcommonsharesout
standi
ng.
b 109. Weight
edav er
agenumberofshar
esout
standi
ng.
c 110. Det
erminati
onofsharesusedi
ncomput
ingEPS.
a 111. Computati
onofearni
ngspershar
e.
16-4 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
c 112. BasicEPSwithconv
erti
blepref
erenceshares.
c 113. EPSandashar espl
it
.
d 114. Weightedav
eragenumberofcommonshar esout
standi
ng.
b 115. Dil
utedEPSandthetreasur
ysharemet hod.
MULTI
PLECHOI
CE—Ear
ningsPerShar
e,Comput
ati
onal(
cont
.)
Answer No. Descr
ipt
ion
b 116. Dil
utedEPSwi thconvertibl
ebonds.
c 117. Dil
utedEPSandcont i
ngenti ssuances.
d 118. BasicEPS.
c 119. Dil
utedEPSwi thconvertibl
ebondsandpr eferenceshares.
d 120. Numberofshar esincomput ingdilutedEPS.
c 121. Dil
utedEPS.
c 122. EPSandcont i
ngentissuances.
b 123. Dil
utedEPSwi thconvertibl
ebonds.
c 124. Dil
utedEPSwi thconvertibl
ebonds.
b 125. Dil
utedEPSwi thconvertibl
ebonds.
b 126. Dil
utedEPS.
d 127. BasicEPSwi t
hconv ert
iblebondsandconv erti
blepreferenceshares.
c 128. Dil
utedEPS.
b 129. Denominatorincomput ingbasi cEPSandDEPSwi t
hconv er
ti
blebonds.
b 130. Sharesoutst
andingforbasi cEPSandDEPS.
b 131. BasicEPSwi t
hconv ert
iblepr ef
erenceshar es.
c 132. Dil
utedEPSwi thconvertibl
ebonds.
a 133. BasicEPSandDEPSwi t
hconv ert
iblebondsi ssueddur i
ngy ear
.
c 134. BasicEPSwi t
hconv ert
iblepr ef
erenceshar esandconv ert
ibl
ebonds.
b 135. DEPSwi t
hconv ert
ibl
epr eferredstockandconv erti
blebonds.
c 136. DEPSandt hetreasuryshar emet hod.
d 137. DEPSusingthet r
easuryshar emet hod.
MULTI
PLECHOI
CE—Ear
ningsPerShar
e,CPAAdapt
ed
Answer No. Descr
ipt
ion
b 138. Deter
mineear ningspershare.
b 139. Deter
mineear ningspershare.
d 140. Deter
minedilutedEPS.
b 141. Numberofshar est ocalcul
atedi
l
utedEPS.
b 142. DEPSwi t
hconv ertibl
esecuri
ti
es.
d 143. Eff
ectofdivi
dendsonnonconv er
ti
blepr
efer
enceshar
es.
a 144. "I
fconver
ted"met hod.
EXERCI
SES
I
tem Descr
ipt
ion
E16-
145I
ssuance,conver
sion,andrepurchaseofconv
ert
ibl
ebonds.
E16-
146Conver
ti
blebonds( essay)
.
E16-
147I
ssuance,conver
sion,andrepurchaseofconv
ert
ibl
ebonds.
E16-
148I
ssuanceandconv ersi
onofbonds.
E16-
149St
ockoptions.
E16-
150Weight
edav er
ageshar esoutst
anding.
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-5
E16-
151Earni
ngspershare.
E16-
152Dil
utedear
ningspershare.
*
E16-
153Shareappr
eciat
ionri
ghts.
PROBLEMS
I
tem Descr
ipt
ion
P16-
154Convert
ibl
ebondsandsharewar r
ants.
P16-
155Earni
ngspershare.
P16-
156Basicanddil
utedear
ningspershare.
P16-
157Basicanddil
utedear
ningspershare.
P16-
158Basicanddil
utedear
ningspershare.
CHAPTERLEARNI
NGOBJECTI
VES
1. Descr
ibe t
he account
ing f
ort
he i
ssuance,conv
ersi
on,and r
eti
rementofconv
ert
ibl
e
secur
it
ies.
2. Expl
aint
heaccount
ingf
orconv
ert
ibl
epr
efer
enceshar
es.
3. Contr
astthe account
ing f
orshar
e war
rant
s and shar
e war
rant
sissued wi
th ot
her
secur
it
ies.
4. Descr
ibet
heaccount
ingf
orshar
ecompensat
ionpl
ansunderI
FRS.
5. Di
scusst
hecont
rov
ersyi
nvol
vi
ngshar
ecompensat
ionpl
ans.
6. Comput
eear
ningspershar
einasi
mpl
ecapi
tal
str
uct
ure.
7. Comput
eear
ningspershar
einacompl
excapi
tal
str
uct
ure.
*
8. Expl
aint
heaccount
ingf
orshar
e-appr
eci
ati
onr
ight
spl
ans.
*
9. Comput
eear
ningspershar
einacompl
exsi
tuat
ion.
16-6 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
SUMMARYOFLEARNI
NGOBJECTI
VESBYQUESTI
ONS
I
tem Typ I
tem Typ I
tem Typ I
tem Typ I
tem Typ I
tem Typ I
tem Typ
e e e e e e e
Lear
ningObj
ect
ive1
1. TF 22. MC 26. MC 50. MC 54. MC 88. MC 148. E
2. TF 23. MC 27. MC 51. MC 55. MC 145. E 154. P
3. TF S
24. MC 48. MC 52. MC 56. MC 146. E
21. MC S
25. MC 49. MC 53. MC 57. MC 147. E
Lear
ningObj
ect
ive2
4. TF 28. MC 30. MC 59. MC
5. TF S
29. MC 58. MC 148. E
Lear
ningObj
ect
ive3
6. TF 32. MC 36. MC 62. MC 66. MC 147. E
7. TF P
33. MC 35. MC 63. MC 67. MC 148. E
8. TF P
34. MC 60. MC 64. MC 68. MC 154. P
31. MC S
35. MC 61. MC 65. MC 89. MC
Learni
ngObj
ecti
ve4
9. TF 38. MC 43. MC 73. MC 78. MC 83. MC
10. TF S
39. MC 69. MC 74. MC 79. MC 84. MC
11. TF 40. MC 70. MC 75. MC 80. MC 90. MC
12. TF 41. MC 71. MC 76. MC 81. MC 149. E
37. MC 42. MC 72. MC 77. MC 82. MC
Learni
ngObj
ecti
ve6
13. TF 92. MC S
96. MC 109. MC 113. MC 156. P
14. TF 93. MC 106. MC 110. MC 138. MC 157. P
15. TF 94. MC 107. MC 111. MC 139. MC
16. TF 95. MC 108. MC 112. MC 140. MC
Learni
ngObj
ecti
ve7
17. TF 100. MC 116. MC 123. MC 130. MC 137. MC 155. P
18. TF 101. MC 117. MC 124. MC 131. MC 141. MC 156. P
19. TF 102. MC 118. MC 125. MC 132. MC 142. MC 157. P
20. TF 103. MC 119. MC 126. MC 133. MC 143. MC 158. P
P
97. MC 104. MC 120. MC 127. MC 134. MC 144. MC
98. MC 114. MC 121. MC 128. MC 135. MC 151. E
99. MC 115. MC 122. MC 129. MC 136. MC 152. E
Lear
ningObj
ect
ive8*
44. MC 46. MC 85. MC 87. MC 153. E
45. MC 47. MC 86. MC 91. MC
Lear
ningObj
ect
ive9*
105. MC
Note:TF=Tr ue-Fal
se
MC=Mul tipl
eChoice
E=Exercise
P=Problem
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-7
16-8 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
TRUE-
FALSE—Concept
ual
1. I
FRSrequir
esthatconv er
ti
bledebtbesepar
atedi
ntoi
tsl
i
abi
l
ityandequi
tycomponent
s
f
oraccount
ingpurposes.
2. Compani
esr
ecogni
zeagai
norl
ossont
heconv
ersi
onofconv
ert
ibl
edebtbef
oremat
uri
ty.
3. Whenanissueroff
erssomeform ofaddi
ti
onalconsi
derat
ion(
asweet ener
)toencour
age
ofi
tsconv
erti
bledebt
,itr
epor
tst
hesweetenerasacurrentper
iodexpense.
4. Theissuerofconver
tibl
epr
efer
enceshar
esusest
hef
airv
aluemet
hodt
orecor
dthe
conv
ersionoft
heshares.
5. Compani
esr
ecogni
zeagai
norl
osswhenshar
ehol
der
sexer
ciseconv
ert
ibl
epr
efer
ence
shar
es.
6. Acompanyshoul
dall
ocat
etheproceedsfr
om thesal
eofdebtwi
thdet
achabl
eshar
e
war
rant
sbet
weenthet
wosecur
it
iesbasedonthei
raf
airval
ues.
7. Nondetachabl
ewar rants,unli
kedetachabl
ewar
rant
s,ar
enotconsi
der
edacompound
i
nst
rumentforaccountingpurposes.
8. Theint
ri
nsi
cv al
ueofashar eopti
oni
st hedi
ff
erencebet
weent
hemar
ketpr
iceoft
he
shar
esandtheexer
cisepr
iceoft
heopt
ionsatt
hegrantdat
e.
9. Underthefai
rval
uemethod,compani
escomputet
otalcompensat
ionexpensebasedon
thef
airval
ueofopti
onsonthedat
eofexer
cise.
10. Theservi
ceper
iodi
nshar
eopt
ionpl
ansi
sthet
imebet
weent
hegr
antdat
eandt
he
vest
ingdat
e.
11. Ifanemployeefai
lstoexer
ciseashar eopt
ionbef
orei
tsexpi
rat
iondat
e,t
hecompany
shoul
ddecreasecompensat
ionexpense.
12. Ifaservi
ceconditi
onexist
s,t
hecompanyi
snotper
mit
tedt
oadj
ustt
heest
imat
eof
compensati
onexpense.
13. I
fpr
efer
encesharesarecumul
ati
veandnodiv
idendsar
edeclar
ed,t
hecompanysubt
ract
s
t
hecurr
entyearpr
efer
encedi
vi
dendincomputi
ngearni
ngspershar
e.
14. Whensharedi
vi
dendsorshar
espl
it
soccur,
companiesmustr
estat
ethesharesout
stand-
i
ngaftert
heshar
edivi
dendorspl
i
t,i
nordertocomputet
heweight
ed-av
eragenumberof
shar
es.
16. Pref
erencediv
idendsaresubtract
edfrom neti
ncomebutnoti
ncomef
rom cont
inui
ng
operat
ionsi
ncomputingear
ningspershar
e.
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-9
17. Whenacompanyhasacompl
excapi
talst
ruct
ure,i
tmustr
epor
tbot
hbasi
canddi
l
uted
ear
ningspershar
e.
18. I
ncomput i
ngdil
utedear
ningspershar
e,shar
eopt
ionsar
econsi
der
eddi
l
uti
vewhent
hei
r
opt
ionpr
iceisgr
eatert
hanthemarketpri
ce.
19. Thenumberofcont i
ngentshar
estobeincludedi
ndi
lut
edear
ningspershar
eisbasedon
thenumberofsharesthatwouldbeissuableasi
ftheendoftheperi
odweretheendof
thecont
ingencyper
iod.
20. Acompanyshouldrepor
tpershar
eamount
sfori
ncomef
rom cont
inui
ngoper
ati
ons,but
notf
ordi
scont
inuedoper
ati
ons.
Tr
ue-
Fal
seAnswer
s—Concept
ual
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
1. T 6. T 11. F 16. F
2. F 7. F 12. F 17. T
3. T 8. T 13. T 18. F
4. F 9. F 14. F 19. T
5. F 10. T 15. T 20. F
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Concept
ual
21. Convert
ibl
ebonds
a.hav epri
orit
yoverot
heri
ndebtedness.
b.ar eusual
lysecur
edbyafir
storsecondmor tgage.
c. payint
erestonl
yint
heeventearni
ngsar esuff
ici
entt
ocov
ert
hei
nter
est
.
d.maybeexchangedf orequi
tysecurit
ies.
22. Theconversionofbondsismostcommonl
yrecor
dedbyt
he
a.increment al
met hod.
b.proporti
onal method.
c. f
airval
uemet hod.
d.bookv aluemet hod.
c. t
hatmanycor por ati
onscanobt ainfi
nancingatlowerr ates.
d.thatconvert
iblebondswi llalwayssellatapr emium.
S
25. Whenconverti
bledebti snotconv ert
edatmat uri
ty
a.againorl ossi sr ecordedf orthedifferencebet weenthebookv al
ueoft hedebtand
t
hepresentvalueoft hecashf lows.
b.theamountor i
ginallyall
ocatedt oequityisrecordedasagai nonret
ir
ement .
c. t
heamountal l
ocat edt otheequi tycomponentatt heissuancedat
eisr ecordedasa
l
ossonretir
ement .
d.thecarry
ingv al
ueoft hebondequal sitsfacevalueandi tisr
emovedfrom thebooks.
26. Converti
blebonds
a.Ar eseparatedintothebondcomponentandt heexpensecomponent
.
b.Al l
owacompanyt oissuedebtfi
nanci
ngatcheaperrat
es.
c. Areseparatedintotheircomponent
sbasedonr el
ati
vefai
rval
ues.
d.Al lofthechoicesarecor r
ect
.
28. Convertibl
epreferenceshar es
a.Ar ecompoundi nstr
ument swit
hbothali
abil
i
tyandanequitycomponent.
b.Includeanopt i
onf ortheholdert
oconvertpref
erencesharesint
oafixednumberof
ordinaryshares.
c. Uset he“with-and-wit
hout”methodtoval
uethecompoundi nst
rument
.
d.Al lofthechoi cesarecor r
ect
.
S
29. Theconversi
onofpr efer
enceshar esi ntoordinaryshar
esrequi
rest
hatanyexcessoft
he
parval
ueoft heordi
narysharesissuedov erthecarryi
ngamountofthepr
efer
enceshar
es
bei
ngconv er
tedshouldbe
a.refl
ectedcurrentl
yinincome.
b.refl
ectedcurrentl
yinothercompr ehensivei ncome.
c. t
reat
edasapr i
orperiodadjust
ment .
d.treat
edasadi r
ectreducti
onofr etainedear ni
ngs.
30. Theconversionofpr ef
erenceshar
esmayber
ecor
dedbyt
he
a.incr
ement al
met hod.
b.bookv aluemet hod.
c. marketvaluemet hod.
d.parv al
uemet hod.
b.r etai
nedearni
ngs.
c. shareali
abili
tyaccount
.
d.pr emium-sharewarrant
s.
38. Rest r
ictedshar es
a.Bet teral i
gnt heempl oyeeincent i
veswi tht hecompani es’incent
ives.
b.Resul ti nlessdi l
utiontoexi st
ingshar ehol ders.
c. Nev erbecomecompl etel
ywor t
hless.
d.Al loft hechoi cesar ecorrect.
S
39. Whichoft hef ollowingi snotachar acteri
sticofanoncompensat orystockopti
onplan?
a.Subst antiallyall f
ull-
ti
meempl oy eesmaypar ti
cipateonanequi tabl
ebasis.
b.Thepl anof fersnosubst antiv
eopt i
onf eature.
c. Unlimitedt i
meper i
odper mi t
tedf orexer ciseofanopt i
onasl ongast heholderissti
l
l
empl oy edbyt hecompany .
d.Di scountf rom t hemar ketpr i
ceoft hest ocknogr eat
erthanwoul dbereasonableinan
offerofst ockt ost ockholdersorot hers.
42. Thedat
eonwhichtotalcompensat
ionexpensei
scomputedi
nashar
eopt
ionpl
ani
sthedat
e
a.ofgrant.
b.ofexerci
se.
c. t
hatthemarketpri
cecoinci
deswiththeopti
onpri
ce.
d.thatthemarketpri
ceexceedstheoptionpr
ice.
*
44. Inaccountingforshare-
appreci
ati
onri
ghtspl
ans,compensat
ionexpensei
sgeneral
ly
a.notr ecognizedbecausenoexcessofmar ketpr i
ceov
ertheoptionpr
iceexi
stsatt
he
dateofgr ant.
b.r ecognizedintheperi
odoft hegr
ant.
c. all
ocatedov ertheser
viceperi
odoftheemployees.
d.r ecognizedintheperi
odofexerci
se.
*
45. Forshar
eappreci
ationright
s,t
hemeasurementdat
ef orcomput
ingcompensat
ioni
sthe
dat
e
a.theri
ght
smat ure.
b.theshar
e’spri
cer eachesapredet
ermi
nedamount.
Di
l
uti
veSecur
it
iesandEar
ni e 16-13
ngsperShar
c. ofgr
ant.
d.ofexerci
se.
16-14 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
*
46. Anexecuti
vepay snotaxesatt i
meofexerci
sei
na(
an)
a.shareappr eci
ati
onrightsplan.
b.incenti
veshar eopt
ionplan.
c. nonqual
if
iedshareopt i
onplan.
d.Taxeswoul dbepai
di nallofthese.
*
47. Acompanyestimatesthefai
rv al
ueofSARs, usi
nganopt
ion-
pri
cingmodel
,for
a.share-
basedequityawards.
b.share-
basedli
abili
tyawards.
c. bot
hequit
yawar dsandli
abi l
i
tyawards.
d.neit
herequi
tyawar dsorl
iabil
ityawar
ds.
Mul
ti
pleChoi
ceAnswer
s—Di
l
uti
veSecur
it
ies,
Concept
ual
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
21. d 26. b 31. d 36. c 41. c *
46. b
22. d 27. d 32. d 37. c 42. a *
47. b
23. b 28. b 33. d 38. d 43. a
24. c 29. d 34. c 39. c *
44. c
25. d 30. b 35. b 40. a *
45. d
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
48. FogelCo.has$2, 500,
000of8% conv erti
blebondsout standi
ng.Each$1, 000bondi s
converti
bleint
o30shar esof$30parv alueor dinar
yshar es.Thebondspayi ntereston
January31andJul y31.OnJuly31,2012,thehol dersof$800, 000bondsexer cisedt he
conversi
onpr i
vil
ege.Ont hatdat
ethemar ketpr i
ceoft hebondswas105andt hemar ket
pri
ceoft heordinaryshareswas$36.Thet otalunamor ti
zedbondpr emium atthedat eof
conversi
onwas$175, 000.Fogel
shouldrecord,asar esul
toft hi
sconver
sion,a
a.cr editof$136,000toSharePremium—Or dinary.
b.cr editof$120,000toSharePremium—Or dinary.
c. creditof$56,000toonBondsPay abl
e.
d.lossof$8, 000.
theaccount"shar
epr
emi
um—or
dinar
y,"asar
esul
toft
hisconv
ersi
on?
a.$330,000.
b.$160,000.
c. $1,
440,000.
d.$720,000.
51. Li
tkeCorporat
ionissuedatapr emi um of$5,000a$100,000bondi ssueconvert
ibl
einto
2,
000or di
naryshares( parv al
ue$40) .Att hetimeoftheconv ersi
on,theunamor ti
zed
pr
emi um i
s$2,000,themar ketvalueoft hebondsis$110,000,
andt hesharesarequoted
onthemar ketat$60pershar e.Ifthebondsar econvert
edor di
naryshares,whatisthe
amountofsharepremi um t
ober ecordedont heconv
ersi
onofthebonds?
a.$25,000
b.$22,000
c. $32,
000
d.$40,000
PVof1–4per
iods
6% .
79209
9% .
70843
a.€1,000,
000
b.€750,000
c. €902,
813
d.€916,337
PVof1–4periods
6% .
79209
9% .
70843
16-16 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
a.€- 0-
b.€97,187
c. €83,
663
d.€250,000
57. Pelton,I
nc.issued£2,000,
000parv al
ue,7% conver
tibl
ebondsat99f orcash.Thenet
presentval
ueoft hedebtwit
houttheconversi
onfeat
ureis£1,
9000,
000.Whatamountwil
l
Pelotonassi
gnt otheequi
tyfeat
ureofthesebonds?
a.£100, 000
b.£-0-
c. £99,000
d.£80, 000
63. OnApr i
l7,2012,Kegi
nCor por
ati
onsol da$2, 000,
000,twent y-
year,8percentbondissue
for$2,120,
000.Each$1,000bondhast wodet achablewarrants,eachofwhi chpermit
sthe
purchaseofoneshar eofthecorporati
on'
sordinarysharesfor$30.Theshar eshaveapar
value of$25 pershar e.Immediatelyaftert he sal
e oft he bonds,the corporat
ion'
s
securi
tieshadthefoll
owingfai
rvalues:
8%bondwi t
houtwar
rant
s $1,
008
Warrant
s 21
Or
dinaryShar
es 28
Whataccountsshoul
dKegi
ncr
editt
orecor
dthesal
eofthebonds?
a.BondsPay abl
e $2,077,
600
SharePr
emium—ShareWar
rants 42,
400
b.BondsPay abl
e $2,035,
200
SharePr
emium—ShareWar
rants 84,
800
c. BondsPayabl
e $2,016,
000
SharePr
emium—ShareWar
rants 104,
000
d.BondsPay abl
e $2,120,
000
Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions64and65.
66. VernonCorporati
onof fer
eddetachable5-yearwarrantstobuyoneor di
nar
yshare(par
val
ue$5)at$20( atat i
mewhent heshar esweresel
lingfor$32)
.Thepr i
cepai
dfor2,
000,
$1,000bondswi t
ht hewarrant
sattachedwas$205, 000.Themar ketpri
ceoftheVernon
bondswithoutthewar r
antswas$180, 000,andthemar ketpri
ceoft hewarr
antswit
hout
thebondswas$20, 000.Whatamountshoul dbeall
ocatedtothewar r
ants?
a.$20,000
b.$25,000
c. $24,
000
d.$20,500
Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions67and68.
70. OnJanuary1,2012,TrentCompanygrant
edDickWill
i
ams, anemployee,anopti
ontobuy
100shar
esofTr entCo.sharesf
or$30pershare,
theopti
onexerci
sablefor5yearsfr
om
dat
eofgrant.Usingafairval
ueopt
ionpri
cingmodel
,tot
alcompensationexpenseis
16-20 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
det
erminedt obe$900.Wi
l
li
amsexerci
sedhi
soptiononSept
ember1,2012,
andsoldhi
s
100sharesonDecember1,2012.Quot
edmarketpri
cesofTr
entCo.shar
esdur
ing2012
were:
January1 $30pershar
e
September1 $36pershar
e
December1 $40pershar
e
Theser vi
ceperiodi
sfortwoy ear
sbeginni
ngJanuar
y1,2012.Asar esultoft
heopti
on
grant
edt oWi l
li
ams,usingt
hef ai
rval
uemethod,Tr
entshouldrecognizecompensat
ion
expensef or2012onitsbooksintheamountof
a.$1, 000.
b.$900.
c. $450.
d.$0.
74. I
nor dertoret
aincer
tainkeyexecut
ives,Smil
eyCorpor
ati
ongrant
edthem i
ncent
iveshar
e
opti
onsonDecember31, 2009.80,
000optionsweregr
antedatanopti
onpri
ceof$35
pershare.Marketpr
icesoftheshareswereasfoll
ows:
December31, 2010 $46pershar
e
December31, 2011 51pershar
e
Theoptionswer egrantedascompensat i
onforexecut
ives’ser
vicestober ender
edov
erat wo-
yearperiodbeginningJanuary1,2010.TheBlack-
Scholesopt i
onpri
cingmodel
determinestotalcompensationexpensetobe$800,000.Whatamountofcompensat ion
expenseshoul dSmi l
eyrecogni
zeasar esul
tofthi
spl anfortheyearendedDecember31,
2010undert hef ai
rval
uemet hod?
a.$1, 400,000.
b.$880, 000.
c. $800,000.
d.$400, 000.
a.$9,000.
b.$7,500.
c. $2,
500.
d.$1,500.
expi
reonJune30,
2012.
OnJanuary4,2011,whenthemar ketpri
ceoftheshar
eswas$42pershar e,al
l30,
000
opt
ionswereexerci
sed.Whatshouldbetheamountofcompensati
onexpenserecor
ded
byNormanCorporat
ionfort
hecalendary
ear2010usi
ngthef
airv
aluemethod?
a.$0.
b.$144,000.
c. $180,
000.
d.$360,000.
81. Inordert
or et
aincert
ainkeyexecut
ives,
JensenCorpor
ati
ongrant
edthem i
ncent
iveshar
e
opti
onsonDecember31, 2009.50,
000opti
onsweregrantedatanopt
ionpri
ceof$35per
shar
e.Mar ketpri
cesoftheshareswereasfol
lows:
December31,
2010 $46pershar
e
December31,
2011 51pershar
e
Theopt i
onswer egrantedascompensat i
onforexecut
ives'ser
vicestoberenderedov
era
two-yearperiod beginni
ng January1,2010.TheBl ack-Scholesopt i
on pr
ici
ng model
deter
mi nestotalcompensationexpensetobe$500,000.Whatamountofcompensat ion
expenseshoul dJensenrecognizeasaresul
tofthi
splanforthey earended
December31, 2010underthefairv
aluemethod?
a.$250, 000.
b.$500, 000.
c. $550,000.
d.$1, 750,
000.
83. OnJanuary1,2011(thedateofgrant),Henr
ikCo.issues2,000shar
esofr
estr
ict
edshares
toi
tsexecuti
ves.Thef ai
rval
ueoftheseshar esi
s$75, 000,andt
hei
rparv
alueis$10,
000.
Thesharesarefor
fei
tediftheexecuti
vesdonotcompl et
e3y ear
sofempl
oymentwiththe
company.Assumingt heservi
ceper i
odisthreeyears,howmuchcompensationexpense
wil
lHenri
kCo.recordonJanuar y1,2011?
a.$25,000.
b.$-0-
c. $3,
333.
d.$21,667.
84. AnazaziCo.offer
sal li
ts10,
000employeestheopport
unit
ytopar ti
cipatei
nanemployee
shar
e-purchaseplan.Underthet
ermsoft heplan,
theemployeesareent i
tl
edt
opurchase
100ordinaryshar
es( parval
ue$1pershare)ata20percentdiscount.Thepur
chasepri
ce
16-24 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
mustbepai di
mmedi atel
yuponaccept anceoft heoffer
.Intotal
,8,
500employeesaccept
theoff
er,andeachempl oyeepurchasesonav erage80shar esat$22shar
e( marketpr
ice
$27.
50).UnderIFRS,AnazaziCo.wil
lrecord
a.Nocompensat i
onsincetheplanisusedt oraisecapi
tal,
notcompensat
eempl oyees.
b.Compensat i
onexpenseof$5, 500,000.
c. Compensati
onexpenseof$18, 700,000.
d.Compensat i
onexpenseof$3, 740,000.
Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions85t
hrough87.
OnJanuary1,2010,Korsak,I
nc.est
abli
shedashar eappr
eciationri
ght
splanforit
sexecuti
ves.I
t
ent
it
ledthem t
orecei
vecashatanyt i
medur i
ngt henextf
oury earsf
orthedi
ff
erencebetweenthe
marketpri
ceofitsordi
narysharesandapr e-establ
i
shedpriceof$20on60, 000SARs.Cur r
ent
marketpri
cesofthesharesareasfol
lows:
Januar
y1,2010 $35pershar
e
December31,2010 38pershar
e
December31,2011 30pershar
e
December31,2012 33pershar
e
Compensati
onexpenser
elat
ingt
othepl
ani
stober
ecor
dedov
eraf
our
-yearper
iodbegi
nni
ng
Januar
y1,2010.
*
85. Whatamountofcompensat
ionexpenseshoul
dKor
sakr
ecogni
zef
ort
hey
earended
December31,2010?
a.$180,000
b.$270,000
c. $225,
000
d.$1,080,
000
*
86. Whatamountofcompensat
ionexpenseshoul
dKor
sakr
ecogni
zef
ort
hey
earended
December31,2011?
a.$0
b.$30,000
c. $300,
000
d.$150,000
*
87. On December31,2012,16,000 SARsareexer
cised byexecutiv
es.Whatamountof
compensati
onexpenseshoul
dKorsakr
ecogni
zef
orthey earendedDecember31,
2012?
a.$285,000
b.$195,000
c. $585,
000
d.$78,000
Mul
ti
pleChoi
ceAnswer
s—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
48. a 54. c 60. b 66. b 72. b 78. c *84. d
49. b 55. a 61. c 67. c 73. b 79. c *85. b
50. a 56. b 62. c 68. b 74. d 80. b *
86. b
51. b 57. d 63. c 69. b 75. d 81. a *
87. a
Di
l
uti
veSecur
it
iesandEar
ni e 16-25
ngsperShar
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
88. OnJanuar y2,2011,Far rCo.issued10- yearconvert
ibl
ebondsat105.Dur i
ng2013,these
bondswer econv ert
edi ntoor dinaryshareshav i
nganaggr egateparv al
ueequalt othe
tot
alfaceamountoft hebonds.Atconv ersi
on,themar ketpriceofFar r
’sshareswas50
percentabov eitsparv alue.OnJanuar y2,2011,cashpr oceedsfrom theissuanceofthe
converti
blebondsshoul dber eportedas
a.shar ecapitalfortheent i
repr oceeds.
b.shar epr emium fort hepor ti
onoft hepr oceedsatt
ri
but abl
et otheconv er
sionfeat
ure
andasal i
abili
tyforthebal ance.
c. aliabi
li
tyfortheent ir
epr oceeds.
d.al iabil
it
yf orthepresentv al
ueoft hebondsandshar epremium fortheamountov er
thebondspr esentv alue.
*
81. OnJanuar y2,2012,f orpastser vi
ces,RosenCor p.grantedNennPi ne,itspresi
dent,
16,
000shar eappreciati
onr i
ghtsthatar
eexercisableimmedi at
elyandexpir
eon
January2, 2013.Onexer ci
se,Nennisenti
tl
edtor eceivecashfortheexcessofthemar ket
pri
ceoft heshar esont heexer ci
sedateoverthemar ketpri
ceont hegr
antdate.Nenndi d
notexerciseanyoft her i
ghtsduring2010.Themar ketpr i
ceofRosen'sshareswas$30on
January2,2012,and$45onDecember31,2012.Asar esul
toft heshareappreci
ati
on
ri
ghts,
Rosenshoul dr ecogniz
ecompensat i
onexpensef or2012of
a.$0.
b.$80, 000.
c. $240,000.
d.$480, 000.
16-26 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Mul
ti
pleChoi
ceAnswer
s—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
88. d 89. a 90. c *
91. c
MULTI
PLECHOI
CE—Ear
ningsPerShar
e—Concept
ual
92. Wit
hr espectt othecomput ati
onofear ningspershare,whichofthefol
lowi
ngwoul
dbe
mostindicativeofasi mpl ecapitalst
ructure?
a.Or dinaryshar es,preferenceshar es,andconverti
blesecur
it
iesout
standi
ngi
nlot
sof
ev
ent housands
b.Ear ningsder i
vedf r
om onepr imar
yl i
neofbusiness
c. Owner shipinterestconsisti
ngsolelyofor di
nar
yshares
d.Noneoft hese
94. Incomput at
ionsofwei ghtedav er
ageofsharesout st
andi
ng,whenashar
edi
vi
dendor
stockspli
toccur
s,theadditional
sharesare
a.wei ghtedbythenumberofday soutst
andi
ng.
b.wei ghtedbythenumberofmont hsoutst
anding.
c. consider
edoutstandingatthebeginni
ngoftheyear.
d.consi der
edoutstandingatthebeginni
ngoftheearli
esty
earr
eport
ed.
101. Inthedi l
utedear ni
ngspershar ecomput ati
on,t hetreasur yshar emet hodisusedf or
opti
onsandwar rantst oreflectassumedr eacquisit
ionofor dinarysharesatt heaverage
marketpricedur i
ngt heperi
od.I ft
heexercisepriceoftheopt ionsorwar rantsexceedsthe
averagemar ketpr i
ce, thecomput ati
onwoul d
a.f air
lypresentdi l
ut edearningspershareonapr ospectivebasi s.
b.f air
lypr esentt hemaxi mum pot enti
aldi l
uti
onofdi l
utedear ni
ngspershar eona
prospect iv
ebasi s.
c. refl
ecttheexcessoft henumberofshar esassumedi ssuedov erthenumberofshar es
assumedr eacqui redasthepot enti
aldi
luti
onofear ningspershar e.
d.beant i
dilutive.
102. Inapplyi
ngthet r
easurysharemethodt odeter mi
net hedi l
uti
veef fectofshareopt i
ons
andwar r
ants,theproceedsassumedt ober ecei
veduponexer ciseoft heopt ionsand
warrant
s
a.ar eusedt ocalculatethenumberofor dinar
yshar esr epurchasedatt heav er
age
marketpri
ce,whencomput i
ngdil
utedearningspershar e.
b.ar eadded,netoftax,t
othenumeratorofthecalculati
onfordil
ut edearningspershare.
c. aredisr
egardedint hecomput
ati
onofear ningspershar eiftheexer cisepriceofthe
opti
onsandwar rantsisl
esst
hantheendingmar ketpri
ceofor dinaryshares.
d.noneoft hese.
103. Whenapplyingthetreasur
ysharemet hodf ordi
lutedear
ningspershar
e,t
hemar
ketpr
ice
oft
heor di
narysharesusedfortherepurchaseisthe
a.priceattheendoft heyear.
b.averagemar ketpri
ce.
c. pr
iceatthebeginningoftheyear.
d.noneoft hese.
104. Ant
idi
l
uti
vesecuri
ti
es
a.shoul
dbei ncl
udedi
nthecomput
ati
onofdi
l
utedear
ningspershar
ebutnotbasi
c
16-28 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
earningspershare.
b.ar et hosewhosei nclusi
oninear ni
ngspersharecomputat
ionswouldcausebasi
c
earningspersharetoexceeddil
utedearni
ngspershar
e.
c. i
ncludeshar eopt i
onsandwar rantswhoseexerci
sepricei
sl esst
hantheaver
age
mar ketpr
iceofordinaryshar
es.
d.shoul dbei gnor
edinallearni
ngspersharecal
cul
ati
ons.
*
105.Assumet her
earetwodi l
uti
veconv er
ti
blesecur
it
ies.Theonet
hatshoul
dbeusedf
ir
stt
o
recal
culateearni
ngspershareisthesecuri
tywit
ht he
a.gr eaterearni
ngsadj
ustment.
b.gr eaterearni
ngspershareadjustment.
c. smal l
erearni
ngsadjust
ment .
d.smal l
erearni
ngspershareadjustment.
Mul
ti
pleChoi
ceAnswer
s—Ear
ningsPerShar
e—Concept
ual
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
92. c 94. d 96. b 98. d 100. a 102. a 104. d
93. d 95. c 97. b 99. b 101. d 103. b *
10 d
5.
Sol
uti
ont
oMul
ti
pleChoi
cequest
ionf
orwhi
cht
heansweri
s“noneoft
hese.
”
93. annual
pref
err
eddi
vi
dend.
Di
l
uti
veSecur
it
iesandEar
ni e 16-29
ngsperShar
MULTI
PLECHOI
CE—Ear
ningsPerShar
e—Comput
ati
onal
106. Hil
lCorp.had600,000ordi
narysharesoutst
andi
ngonJanuary1,issued900,
000shares
onJuly1,andhadi ncomeappli
cabl
etocommonst ockof$1,
050,000fortheyearendi
ng
December31,2012.Earni
ngspershareofordi
nar
yshar
esfor2012woul dbe
a.$1.75.
b.$.83.
c. $1.
00.
d.$1.17.
108. MiloCo.had600,000ordi
nar
ysharesoutstandi
ngonJanuary1,i
ssued126,
000shareson
May1,pur chased63,
000sharesoftreasuryshar
esonSept ember1,andissued54,
000
sharesonNov ember1.Thewei
ght
edav erageshar
esoutst
andingfort
heyearis
a.651,000.
b.672,000.
c. 693,
000.
d.714,000.
110. Thef
oll
owi
ngi
nfor
mat
ioni
sav
ail
abl
eforBar
oneCor
por
ati
on:
January1,2011 Sharesout
standi
ng 1,
250,
000
Apri
l1,2011 Sharesi
ssued 200,
000
Jul
y1, 2011 Treasur
ysharespur
chased 75,
000
October1,2011 Sharesi
ssuedina100%stockdi
vi
dend 1,
375,
000
Thenumberofshar
est
obeusedi
ncomput
ingear
ningsperor
dinar
yshar
efor2011i
s
a.2,825,
500.
b.2,737,
500.
c. 2,
725,
000.
d.1,706,
250.
16-30 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
112. Ful
tzCompanyhad300, 000or dinarysharesi ssuedandout st
andi
ngatDecember31,
2010.Duri
ng2011,noaddi t
ionalor di
naryshar eswer eissued.OnJanuary1,2011,Ful t
z
i
ssued400,000sharesofnonconv ert
iblepreferenceshar es.Duri
ng2011,Fultzdeclar
ed
and pai
d $180,000 cash dividends on t he or dinar
y shares and $150,000 on the
nonconver
ti
blepref
erenceshares.Neti ncomef ort heyearendedDecember31, 2011,was
$960,
000.WhatshouldbeFul t
z's2011ear ningspershar e,roundedtothenearestpenny?
a.$1.16
b.$2.10
c. $2.
70
d.$3.20
114. Sti
neI nc.had300,000or di
naryshar
esissuedandoutstandingatDecember31, 2010.On
Jul
y1, 2011anadditional300,
000shar
eswer eissuedforcash.Sti
nealsohadshar e
optionsoutstandi
ngatt hebeginni
ngandendof2011whi chall
owt heholder
stopurchase
90,
000or di
narysharesat$28pershare.Theaveragemar ketpri
ceofStine’
sordinar
y
shareswas$35dur i
ng2011.Thenumberofshar estobeusedi ncomput i
ngdil
uted
earningspersharefor2011i s
a.672, 000
b.618, 000
c. 522, 000
d.468, 000
Di
l
uti
veSecur
it
iesandEar
ni e 16-31
ngsperShar
Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions118and119.
HansonCo.had200, 000or di
naryshar es,20,000shar esofconvert
ibl
epreferenceshares,
and
$1,
000,000of10%conv er
tibl
ebondsout standingduring2011.Thepr ef
erencesharesare
conver
tiblei
nto40,000or dinar
yshar es.Dur i
ng2011, Hansonpai ddiv
idendsof$1.20pershare
ontheor di
narysharesand$4pershar eont hepr ef
erenceshares.Each$1,000bondi s
conver
tiblei
nto45or dinaryshares.Theneti ncomef or2011was$800, 000andt heincometax
rat
ewas30%.
118. Basicearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 94.
b.$3. 22.
c. $3.35.
d.$3. 60.
119. Di
lutedearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 77.
b.$2. 81.
c. $3.05.
d.$3. 33.
16-32 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-33
ngsperShar
121. ShipleyCorporati
onhadneti ncomef ort heyearof$480, 000andawei ghtedaver
age
numberofor dinar
ysharesout st
andingdur i
ngtheperiodof200,000shares.Thecompany
hasaconv er
ti
blebondi ssueout st
anding.Thebondswer ei ssuedfouryearsagoatpar
($2,000,
000),carrya 7% i nter
estr at
e,and ar e conver
ti
blei nt
o 40,
000 shares.The
companyhasa40%t axr ate.Dil
utedearningspershareare
a.$1. 65
b.$2. 23.
c. $2.35.
d.$2. 58.
122. Col
tCorpor
ati
onpur chasedMasseyI nc.andagr eedtogi
vesharehol
dersofMasseyI nc.
50,
000addi
ti
onalsharesin2012ifMasseyI nc.’
snetincomein2011is$400,000ormor e;
i
n2010MasseyI nc.’
snetincomei s$410,000.Colthasneti
ncomef or2010of$800,000
andhasanaveragenumberofor dinar
yshar esoutst
andi
ngfor2010of500, 000shares.
Whatshoul
dColtreportasearni
ngspershar efor2010?
Basi
cEarni
ngs Di
l
utedEarni
ngs
PerShar
e PerShare
a. $1.
60 $1.
60
b. $1.
45 $1.
60
c. $1.
60 $1.
45
d. $1.
45 $1.
45
Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions127and128.
LernerCo.had200,000ordinar
yshar es,20,000shar esofconvert
ibleprefer
enceshar es,and
$1,
000,000 of10% convert
ibl
e bonds outstanding duri
ng 2011.The preference shares ar
e
convert
ibl
eint
o40,000ordi
naryshares.During2011,Ler nerpai
ddividendsof$. 90peror di
nary
shareand$3.00perpref
erenceshare.Each$1, 000bondi sconvert
ibleint
o45or di
naryshares.
Thenetincomefor2011was$600,000andt hei ncomet axrat
ewas30%.
127. Basicearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 21.
b.$2. 42.
c. $2.51.
d.$2. 70.
128. Di
lutedearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 14.
b.$2. 25.
c. $2.35.
d.$2. 46.
Di
l
uti
veSecur
it
iesandEar
ni e 16-35
ngsperShar
16-36 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
129. Yoder,Incorpor
ated,has3,200,000ordi
narysharesoutstandi
ngonDecember31,2010.
Anaddi t
ional800,
000ordinaryshareswereissuedonApr i
l1,2011,and400,000moreon
July1,2011.OnOct ober1,2011,Yoderissued20,000,$1,000facevalue,8%conver
ti
ble
bonds.Eachbondi sconverti
bleint
o20ordinaryshar
es.Nobondswer econv er
tedi
n2011.
Whati st henumberofshar est obeusedi ncomputingbasicearningspershareand
di
lutedear ni
ngspershar
e,respecti
vel
y?
a.4, 000,000and4,000,
000
b.4, 000,000and4,100,
000
c. 4,000,000and4,400,
000
d.4, 400,000and5,200,
000
130. NolteCo.has4,000,
000or di
naryshar esout
standi
ngonDecember31, 2010.Anadditi
onal
200,000sharesar eissuedonApr i
l1,2011,and480, 000mor eonSept ember1.On
October1,Nol teissued $6,000,000 of9% conv er
ti
ble bonds.Each $1,000 bond is
converti
blei
nto40ordinaryshares.Nobondshav ebeenconv er
ted.Thenumberofshar es
tobeusedi ncomput ingbasicear ningspershareanddi lut
edear ni
ngspershar eon
December31, 2011is
a.4, 310,
000and4,310,000.
b.4, 310,
000and4,370,000.
c. 4,310,
000and4,550,000.
d.5, 080,
000and5,320,000.
133. Gri
mm Companyhas1, 800,000ordinarysharesout standi
ngonDecember31,2010.An
additi
onal150,
000ordinaryshareswer eissuedonJul y1,2011,and300, 000moreon
October1,2011.OnApr i
l1,2011,Grimm issued6, 000,$1,
000facevalue,8%conver
ti
ble
bonds.Eachbondisconv er
ti
blei
nto40or dinaryshares.Nobondswereconv ert
edi
n2011.
Whati sthenumberofshar estobeusedi ncomput ingbasi
cearningspershareand
di
lutedearni
ngspershare,r
especti
vely,
forthey earendedDecember31, 2011?
a.1, 950,
000and2,130,
000
b.1, 950,
000and1,950,
000
c. 1,950,
000and2,190,
000
d.2, 250,
000and2,430,
000
Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions134and135.
I
nfor
mati
onconcerni
ngthecapital
struct
ureofPi
perCor
porat
ionisasf ol
l
ows:
December31,
2011 2010
Ordi
nar
yShares 150,
000shares150,000shares
Conver
ti
blepref
erenceshares 15,
000shares15,000shares
9%convert
ibl
ebonds $2,
400,
000$2, 400,
000
Duri
ng2011,Piperpaiddividendsof$1. 20peror di
naryshar
eand$3. 00perprefer
enceshar
e.
Theprefer
encesharesareconv erti
bleint
o30,000ordinar
yshares.The9%conv ert
ibl
ebondsare
conver
ti
bleint
o75,000ordinaryshar es.Thenetincomef ort
hey earendedDecember31,2011,
was$600,000.Assumethatt heincomet axrat
ewas30%.
135. Whatshouldbethedil
utedear
ningspershar
efort
hey
earendedDecember31,2011,
roundedtot
henear
estpenny
?
a.$3. 20
b.$2. 95
c. $2.83
d.$2. 35
136. Warrantsexer ci
sabl
eat$20eacht oobtain30,000ordi
naryshareswer eout st
anding
dur
ing a per i
od when t he av
erage mar
ketpr i
ce ofthe ordi
nary shares was $25.
Appli
cationoft hetr
easurysharemethodfortheassumedexerci
seoft hesewar r
antsin
comput i
ngdi l
utedearningspersharewillincr
easethewei ght
edav eragenumberof
out
standi ngsharesby
a.30, 000.
b.24, 000.
c. 6,000.
d.7, 500.
16-38 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
137. Terr
yCor porat
ionhad300,000or di
narysharesout st
andingatDecember31,2012.I n
additi
on,ithad90, 000shareoptionsoutstanding,whichhadbeengr ant
edtocer t
ain
executiv
es, andwhi
chgavethem therightt
opur chaseTerry'
sshar
esatanopt i
onpri
ceof
$37pershar e.Theaver
agemar ketpr i
ceofTer ry'
sordinar
ysharesfor2012was$50.
Whati sthenumberofsharesthatshouldbeusedi ncomput i
ngdil
utedearni
ngspershare
fortheyearendedDecember31, 2012?
a.300, 000
b.331, 622
c. 366,600
d.323, 400
Mul
ti
pleChoi
ceAnswer
s—Ear
ningsPerShar
e—Comput
ati
onal
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
106. c 111. a 116. b 121. c 126. b 131. b 136. c
107. c 112. c 117. c 122. c 127. d 132. c 137. d
108. b 113. c 118. d 123. b 128. c 133. a
109. b 114. d 119. c 124. c 129. b 134. c
110. c 115. b 120. d 125. b 130. b 135. b
MULTI
PLECHOI
CE—Ear
ningsPerShar
e—CPAAdapt
ed
138. DiddeCo.had300, 000or di
narysharesissuedandoutst
andingatDecember31, 2010.No
ordi
naryshar eswer eissueddur i
ng2011.OnJanuar y1,2011,Di ddeissued200,000
shares ofnonconv ert
ibl
e prefer
ence shar es.Duri
ng 2011,Didde decl
ared and pai
d
$100,000cashdi vi
dendsont heor dinar
yshar esand$80,000ont hepref
erenceshares.
Netincomef ortheyearendedDecember31, 2011was$620,000.WhatshouldbeDidde'
s
2011ear ni
ngspershare?
a.$2. 07
b.$1. 80
c. $1.73
d.$1. 47
141. Foyl
e,Inc.
,had560, 000ordi
nar
yshar
esandout standi
ngatDecember31,2010.OnJul y1,
2011,anaddi t
ional40,
000shareswereissuedforcash.Foyl
eal
sohadunexerci
sedshar e
opti
onst opurchase32,000ordi
nar
yshar esat$15pershareout
standi
ngatthebeginning
andendof2011.Theav er
agemarketpr i
ceofFoy l
e'sordi
nar
yshareswas$20dur ing
2011.Whati sthenumberofsharesthatshouldbeusedincomputingdi
lut
edearni
ngsper
sharefortheyearendedDecember31, 2011?
a.580, 000
b.588, 000
c. 608,000
d.612, 000
143. In determining di
luted ear
nings pershar e,divi
dends on nonconv
ert
ibl
e cumul
ati
ve
prefer
enceshar esshouldbe
a.di sregarded.
b.addedbackt onetincomewhet herdecl
aredornot.
c. deduct edfrom neti
ncomeonl yifdecl
ared.
d.deduct edfrom neti
ncomewhet herdeclaredornot.
144. Theif-
convert
edmet hodofcomput i
ngear ni
ngspershar edat aassumesconv er
sionof
conver
ti
blesecur
it
iesasoft he
a.beginningoft
heear l
iestperi
odreport
ed( oratt i
meofi ssuance, i
flat
er).
b.beginningoft
heear l
iestperi
odreport
ed( regardlessofti
meofi ssuance).
c. middl
eoftheearli
estperiodrepor
ted(regardlessoftimeofi ssuance).
d.endingoftheearli
estperiodrepor
ted(r
egar dlessoftimeofi ssuance).
Mul
ti
pleChoi
ceAnswer
s—Ear
ningsPerShar
e—CPAAdapt
ed
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
138. b 139. b 140. d 141. b 142. b 143. d 144. a
16-40 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-41
ngsperShar
DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
No. Answer Der
ivat
ion
48. a $800,
000+(
$175,
000×.
32)–(
800×30×$30)=$136,
000.
49. b $60,
000–(
1,200×$45)–$2,
400=$3,
600.
51. b $100,
000+$2,
000–(
2,000×$40)=$22,
000.
52. c (
€1,
000,
000×.
70843)+(
€60,
000×3.
23972)=€902,
813
53. b (€1,000,000×.
70843)+(€60,
000×3.
23972)=€902,
813
€1,000,000–€902,813=€97,
817.
54. c (
€1,
000,
000+€97,
187)–(
1,000×250×€1)=€847,
187.
55. a Nogai
norl
ossr
ecor
ded.
56. b €40,
000pay
menti
sdebi
tedt
oConv
ersi
onExpense.
57. d (
₤2,
000,
000×.
99)–₤1,
900,
000=₤80,
000.
58. c €820,
000–(
2,000×€400)=€20,
000dr
.toR/
E.
59. d $6,
180,
000–(
60,
000×3×$25)=$1,
680,
000.
60. b (
$200,
000×.
95)=$190,
000.
61. c (
$800,
000×.
95)=$760,
000;$800,
000×1.
04=$832,
000
$832,
000–$760,
000=$72,
000.
62. c (
$300,
000×.
96)=$288,
000;$300,
000×1.
04=$312,
000
$312,
000–$288,
000=$24,
000.
63. c (2,
000×$1,
008)=$2,
016,
000
$2,
120,
000–$2,
016,
000=$104,
000
64. c ($300,000×.
96)=$288,
000;
$300,000×1.
03=$309,000
$309,000–$288,
000=$21,000.
65. b $300,
000×.
96=$288,
000.
16-42 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion
66. b $205,
000–$180,
000)=$25,
000.
67. c (
$500,
000´.
96)=$480,
000
68. b ($500,000´1.
03)=$15,
000
($500,000´.
96)=$480,
000.
$515,000–$480,000=$35,
000.
69. b $1,
8003=$600.
70. c $9002=$450.
71. c $750,
0003=$250,
000decr
ease.
72. b $1,
2002=$600.
73. b $64,
0002=$32,
000.
74. d $800,
0002=$400,
000.
75. d $90,
000÷3=$30,
000.
76. c $7,
500÷3=$2,
500.
77. c $300,
000÷3=$100,
000.
78. c $240,
000÷3=$80,
000/
year
.
79. c $900,
000– =$300,
000i
ncr
ease(
from t
hecr
edi
ttoPai
d-i
n
Capi
tal
—StockOpti
ons).Off
setby$300,
000decr
ease(
from t
hedebi
tto
Compensati
onExpense).
80. b =$144,
000.
81. a $500,
000÷2=$250,
000.
82. c 20,
000×$11=$220,
000.
83. Nocompensat
ionexpenser
ecor
dedy
et.
84. d [
8,500´80´(
$27.
50–$22)
]=$3,
740,
000.
Di
l
uti
veSecur
it
iesandEar
ni e 16-43
ngsperShar
DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion
*
85. b (
$38–$20)×60,
000×.
25=$270,
000.
*
86. b ($30–$20)×60,
000×.
5=$300,000
$300,
000–$270,
000=$30,
000.
*
87. a ($33–$20)×60,
000×.
75=$585,000
$585,
000–$300,
000=$285,
000.
DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
No. Answer Der
ivat
ion
88. d Concept
ual
.
89. a Concept
ual
.
90. c $140,
000÷2=$70,
000.
*
91. c (
$45–$30)×16,
000=$240,
000.
DERI
VATI
ONS—Ear
ningsPerShar
e,Comput
ati
onal
No. Answer Der
ivat
ion
$1,
050,
000
106. c ————————————=$1.
00.
6
600,
000+(900,
000×—)
12
$1,
020,000
107. c ————————————=$2. 40.
3
400,
000+( 100,000×—-)
12
108. b 600,000+(
126,
000×8/
12)–(63,
000×4/
12)+(
54,
000×2/
12)=672,
000.
109. b [
(125,
000×2×1.20)+(
375,000×2×1.
20)+(
450,
000×3)+(
310,
000×3)
+(510,
000×2)
]÷12=375,000.
110. c [
(1,
250,
000×3×2)+(1,
450,
000×3×2)+(
1,375,
000×3×2)
+(2,
750,
000×3)
]÷12=2,725,
000.
111. a [
$950,
000–(
10,
000×$100×.
05)
]÷(
300,
000×2)=$1.
50.
$960,
000–$150,
000
16-44 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
112. c ——————————=$2.
70.
300,
000
DERI
VATI
ONS—Ear
ningsPerShar
e,Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion
113. c [
$720,
000–(
10,
000´$100´.
04)
](
200,
000´2)=$1.
70.
114 d (
300,
000´6/
12)+(
600,
000´6/
12)+[
((
35–28)35)´90,
000]=468,
000.
115. b [
($36–$30)$36]´12,
000=2,000
$300,
000(200,
000+2,000)=$1.
49.
116. b ($2,000,000$1,
000)´10=20,000
$2,000,000´.07´(
1–. 30)=$98,
000
($600,000+$98,000)(200,
000+20,000)=$3.
17.
117. c Si
nce$520,
000>$500,
000incl
ude10,000shar
esi
nDEPS
$200,
000(100,
000+10,
000)=$1.82.
118. d [
$800,
000–(
20,
000´$4]200,
000=$3.
60.
119. c [
$800,
000+(
$1,
000,
000´.
10´.
7)][
200,
000+40,
000+(
1,000´45)
]
=$3.
05.
120. d 500,
000+(
500,
000×6/
12)+[
(25–20)
/25×150,
000]=780,
000.
121. c [
$480,
000+(
$2,
000,
000×.
07×.
60)
]÷(
200,
000+40,
000)=$2.
35.
$3,000+(
$10,
000×.
06×.
70)
123. b ——————————————=$1. 71.
1,
000+1,000
$3,
000,
000+(
$10,
000,
000×.
06×.
7)
124. c —————————————————=$4. 56.
3
500,
000+(100,
000×—-)+225,
000
12
$160,
000+($300,
000×.
09×.
7)
125. b —————————————————=$3. 03.
50,
000+[
($300,
000÷$1,000)×30)]
$3,400,
000
126. b ——————————=$1.
74.
1,
200,
000+750,000
Di
l
uti
veSecur
it
iesandEar
ni e 16-45
ngsperShar
$600,
000–(
20,
000×$3)
127. d ———————————=$2.
70.
200,
000
DERI
VATI
ONS—Ear
ningsPerShar
e,Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion
$600,
000+($1,
000,
000×.
10×.
7)
128. c ————————————————=$2. 35.
200,
000+45,
000+40,
000
129. b 3,
200,
000+(
800,
000×9/
12)+(400,
000×6/12)=4,
000,
000(
BEPS)
4,
000,
000+(
20,
000×20×3/12)=4,
100,
000(DEPS)
.
130. b 4,
000,
000+(
200,000×9/12)+(480,
000×4/12)=4,310,000.
4,
310,
000+[
($6,
000,000÷$1,
000)×40×3/12]=4,370,000.
$5,
000,000
131. b ——————————=$1.
67.
2,
000,
000+1,000,
000
$4,500,
000+($12,
000,000×.
06×.
7)
132. c ——————————————————=$2. 35.
1,
200,
000+(
400,0004/12)+800,000
133. a 1,
800,
000+(
150,000×6/
12)+(300,000×3/12)=1,
950,
000
1,
950,
000+(
6,000×40×9/12)=2,130,
000.
$600,000–(
15,
000×$3.
00)
134. c —————————————=$3. 70.
150,
000
$600,
000+($2,400,
000×.
09×.
7)
135. b ————————————————=$2. 95.
150,
000+75,000+30,000
136. c 30,
000×$20÷$25=24,
000
30,
000–24,
000=6,
000.
137. d 90,
000–(90,
000×$37÷$50)=23,
400
300,
000+23,
400=323,
400.
DERI
VATI
ONS—Ear
ningsPerShar
e,CPAAdapt
ed
No.Answer Deri
vat
ion
138. b $620,
000–$80,
000
—————————=$1. 80.
300,
000
16-46 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
139. b $400,000–(
10,
000×$100×.
05)
———————————————=$1. 94.
180,
000
140. d $3,400,
000–$200,
000
——————————–=$1. 28.
2,
400,
000+100,000
141. b 560,
000+(
40,
000×6/
12)+[
32,
000–(
32,
000×$15÷$20)
]=588,
000.
142. b Concept
ual
.
143. d Concept
ual
.
144. a Concept
ual
.
Di
l
uti
veSecur
it
iesandEar
ni e 16-47
ngsperShar
EXERCI
SES
Ex.16-
145—IssuanceandConv er
sionRepur chaseofConv er
tibleBonds.Bar oneCorpor ati
on
i
ssues3,000convert
iblebondsatJanuar y1,2011.Thebondshav eat hreeyearli
fe,
andar e
i
ssuedatparwithafacev alueof€1, 000perbond, giv
ingtot
al proceedsof€3, 00,
000.Interesti
s
payabl
eannuall
yat6per cent.Eachbondi sconvert
ibl
einto250or dinaryshares(parvalueof€1) .
Whenthebondsar eissued,themar ketrateofinter
estforsi
mi lardebtwi t
houttheconv ersi
on
opti
onis8%.
I
nst
ruct
ions
(
a)Comput
ethel
i
abi
l
ityandequi
tycomponentoft
heconv
ert
ibl
ebondonJanuar
y1,
2011.
(
b)Pr
epar
ethej
our
nal
ent
ryt
orecor
dthei
ssuanceoft
heconv
ert
ibl
ebondonJanuar
y1,
2011.
(
c)Pr
epar
ethej
our
nal
ent
ryt
orecor
dtheconv
ersi
ononJanuar
y1,
2012.
(
d)Assumet hatthebondswererepurchasedonJanuar y1,2012,for€2,
910,000cashi nst
eadof
beingconvert
ed.Thenetpresentval
ueoft heli
abil
i
tycomponentoft heconv ert
ibl
ebondson
January1,2012,i
s€2,850,
000.Preparethejournal
entrytorecordtherepurchaseonJanuary
1,2012.
Sol
uti
on16-
145
(
a)PresentValueofPrincipal
:
(
€3,000,000.79383) €2,
381,
490
PresentValueofInterestPayment
s:
(€180,0002.57710)
463,
878
PresentValueoftheLi abi
li
tyComponent €2,
845,
368
Fai
rValueofConver
tibl
eDebt €3,
000,
000
Less:
FairVal
ueofLiabi
li
tyComponent
2,
845,
368
Fai
rValueofEqui
tyComponent €154,362
(
b)Cash 3,
000,
000
BondsPayabl
e 2,
845,
368
SharePr
emium—Conv
ersi
onEqui
ty
154,
632
(
c)SharePremium—Conv ersi
onEqui
ty 154,
632
BondsPay abl
e(€2,845,368+€47,629) 2,
892,
997
ShareCapit
al—Or di
nary 750,
000
SharePremium—Or di
nar
y 2,
297,
629*
*€154,
632+€2, 892,997–€750,000
(
d)SharePremium—Conv ersi
onEqui
ty 60,
000*
BondsPay abl
e 2,
892,
997
Cash 2,
910,000
GainonRepurchase(€2,
892,
997–€2,
850,
000) 42,997
*€2,
910,000–€2,850,000
16-48 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-49
ngsperShar
Ex.16-
146—Conv
ert
ibl
eBonds.
KochCo.sol dconv ertiblebondsatapr emium.Int
erestispai
donMay31andNov ember30.On
May31, aft
eri nter
estwaspai d,
100,$1,000bondsar etender
edforconv
ersi
oni
nto3,000shares
of$10parv alueor dinarysharesthathadamar ketpriceof$40pershar
e.HowshouldKochCo.
accountfort heconv ersionofthebondsi ntoordinaryshar
esunderthebookvaluemet hod?
Discusstherationalefort hi
smethod.
Sol
uti
on16-
146
Toaccountf ort heconv ersi
onofbondsundert hebookv al
uemet hod,BondsPay ableshouldbe
debitedforthecar r
y i
ngvalue,andShar eCapital
–Or dinaryshouldbecr editedatparf ort
heshares
i
ssued.Usi ngt hebookv aluemet hod,nogain( l
oss)onconv ersioni srecorded.Theamountt obe
recordedf ort heshar esisequalt othebook( carryi
ng)v alue( facev alueplusunamor ti
zed
premi um)oft hebonds.Shar ePremium–Or dinar ywouldbecr editedf ort hediff
erencebetween
thebookv al
ueoft hebondsandt heparv alueoft hesharesi ssued.Ther at
ionaleforthebook
valuemet hodist hattheconv er
sionisthecompl eti
onoft hetransact i
oni niti
atedwhent hebonds
wer eissued.Si ncet hisisviewedasat ransact i
onwi thshar eholders,nogai n(loss)shoul
dbe
recognized.
EFFECTI
VE-
I
NTERESTMETHOD
10%BONDDI SCOUNTEDAT8%
Car
ryi
ngAmount
Dat
e CashPai
d I
nter
estExpense Pr
emium ofBonds
Amor
tized
1/
1/11 $107,986
12/
31/11 $10,000 $8,638 $1,
362 $107,986
12/
31/12 10,
000 $8,530 1,
470 106,
624
12/
31/13 10,
000 8,
412 1,
588 105,
154
12/
31/14 10,
000 8,
286 1,
714 103,
566
12/
31/15 10,
000 8,
148 1,
852 100,
000
I
nst
ruct
ions
(
a)Pr eparet
hej ournalentr
yt orecordt heissuanceoft heconvert
ibl
ebondonJanuar y1,2011.
(
b)Assumet hatthebondswer econv ertedonDecember31, 2013.Thef ai
rvalueoft heliabi
li
ty
componentoft hebondi sdet erminedt obe$108, 000onDecember31, 2013.Preparet he
j
ournalentrytorecordtheconv er
siononDecember31, 2013.Assumet hattheaccr ualof
i
nterestr
elatedto2013hasbeenr ecor ded.
(
c) Assumet hattheconv ert
iblebondswer erepurchasedonDecember31, 2013, f
or$111, 000
i
nsteadofbei ngconv er
ted.Asi ndi
cat ed,thel
iabi
lit
ycomponentoft hebondi sdet erminedto
be$108,000onDecember31, 2013.Assumet hattheaccrualofi
nterestrel
atedto2013has
16-50 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
beenr
ecor
ded.
Sol
uti
on16-
147
(
a)Cash 120,
000
BondsPayabl
e 107,
986
Shar
ePremi
um—Conv
ersi
onEqui
ty 12,
014
(
b)SharePremium—ConversionEquit
y 12,
014
BondsPay abl
e 103,
566
ShareCapit
al—Or
dinary(
12,000$1) 12,
000
SharePremium—Ordinar
y 103,
580
(
c)Comput at
ionofgainorl
oss:
Presentvalueofl
i
abil
it
ycomponent
At12/31/13 108,000
Less:Carryi
ngval
ue(fr
om abov
e) 103,566
Loss
4,434
Adj
ustmentt oequity
:
Fai
rv al
ueofconv erti
blebonds
(withbothliabi
li
tyandequit
y) 111,
000
Less:Liabi
l
itycomponent 108,
000
AdjustmenttoShar ePremium––Conv
ersi
on
3,
000
SharePremi
um––Conver
sionEqui
ty
3,
000
BondsPayabl
e 103,
566
LossonRepurchase
4,
434
Cash 111,
000
Ex.16-
148(IssuanceandConver
sionofBonds)Foreachoftheunrel
atedt
ransact
ionsdescr
ibed
below,
presenttheentr
y(i
es)r
equi
redtorecor
deachtransact
ion:
1. BadenCor p.issued€5,000,000parv al
ue10%conv ert
iblebondsat99.I fthebondshadnot
beenconv ertible,
thecompany ’
si nvestmentbankerdet erminest hatt heywoul dhav ebeen
soldat95.
2. FlemingCompanyi ssued€5, 000, 000parv alue10%bondsat98.Oneshar ewar rantwas
i
ssuedwi theach€100parv aluebond.Att hetimeofissuance, thewar rantswer esel l
ingfor
€4.Thenetpr esentv al
ueoft hebondswi thoutthewarrantswas€4, 800,000.
3. Jackson, I
nc.cal l
editsconv ertibledebtin2010.Assumet hef oll
owi ngrelatedtot he
transaction: The11%€5, 000,000parv aluebondswer econv ertedi nto500shar esof€1par
valueor dinaryshar esonJul y1, 2010.Thecar ryi
ngamountoft hedebtonJul y1was
€4,800,000.TheShar ePremi um––Conv ersi
onEquityaccounthadabal anceof€1, 000,000
andt hecompanypai danaddi tional€35,000t othebondholder stoi nduceconv ersionofall
thebonds.Thecompanyr ecor dst heconv ersi
onusingthebookv aluemet hod.
Di
l
uti
veSecur
it
iesandEar
ni e 16-51
ngsperShar
Sol
uti
on16-
148
1. Cash(€5,
000,
000.99) 4,
950,
000
BondsPay
able(
€5,000,
000.95) 4,
750,
000
Shar
ePremium—Conversi
onEqui
ty 200,
000
2. Cash(€5,
000,
000.98) 4,
900,
000
BondsPay
able 4,
800,
000
Shar
ePremium––Shar
eWar
rant
s 1,
000,
000
*
[(€4,
800,
000+€100,
000)–€500,
000]
Ex.16-
149—Shar
eopt
ions.
Pr
eparethenecessar
yentri
esfrom 1/
1/10-2/
1/12forthef
oll
owi
ngev
ent
susi
ngt
hef
airv
alue
method.I
fnoentr
yisneeded,wr
ite"
NoEntryNecessar
y."
1.On1/ 1/10,thesharehol
dersadoptedashareopti
onplanfortopexecut
iveswherebyeach
mightreceiv
eright
st opurchaseupto12,
000ordi
naryshar
esat$40pershare.Theparval
ue
i
s$10pershar e.
3.At2/
1/12,f
ourexecut
ivesexer
cisedthei
ropt
ions.Thef
if
thexecut
ivechosenott
oexer
cise
hi
sopti
ons,
whichther
eforewer
ef or
fei
ted.
Sol
uti
on16-
149
1. 1/
1/10
Noent
rynecessar
y.
2. 2/
1/10
Noent
rynecessar
y.
12/
31/
10
Compensat
ionExpense 650,
000
Shar
ePr emium—Shar
eOpt
ions 650,
000
12/
31/
11
Compensat
ionExpense 650,
000
Shar
ePr emium—Shar
eOpt
ions 650,
000
16-52 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Sol
uti
on16-
149(
Cont
.)
3. 2/1/
12
Cash(4×12,000×$40) 1,920,000
Shar
ePr emi
um—Shar eOpt
ions($1,
300,
000×4/5) 1,040,000
Shar
eCapit
al—Ordi
nary 480,000
Shar
ePremium—Ordinar
y 2,480,000
Shar
ePremi
um—ShareOpti
ons 260,
000
Shar
ePr
emiun—Expi
redShar
eOpt
ions 260,
000
Ex.16-
150—Wei
ght
edav
erageshar
esout
standi
ng.
OnJanuary1,2012,WarrenCorporati
onhad1,000,000ordi
narysharesout
standing.OnMar
ch1,
thecorpor
ati
onissued150,000newshar estoraiseaddi
ti
onalcapit
al.OnJuly1,thecor
por
ati
on
decl
aredandissueda2-for-
1sharesplit
.OnOct ober1,t
hecorporat
ionpurchasedonthemarket
600,
000ofitsownoutstandingsharesandret
ir
edt hem.
I
nstruct
ions
Computet hewei
ght
edav
eragenumberofshar
est
obeusedi
ncomput
ingear
ningspershar
efor
2010.
Sol
uti
on16-
150
Incr
ease Months
(Decr
ease)Outstandi
ngOutst
andi
ng Shar
eMont
hs
Jan.1 —1,000,000 22/1 4,
000,
000
March1 150,
0001,150,000 42/1 9,
200,
000
Jul
y1 1,
150,
0002,300,000 3 6,
900,
000
Oct.1 (
600,
000)1,700,000 3 5,
100,
000
12 25,
200,
000
(
25,
200,
000÷12) 2,
100,
000
Ex.16-
151—Ear
ningspershar
e.
SantanaCorporat
ionhas400,000ordi
nar
ysharesoutstandi
ngthr
oughout2012.I
nadditi
on,the
corporat
ionhas5,000,20-
year
,7%bondsissuedatparin2010.Each$1,
000bondi sconver
tibl
e
i
nto20or di
nar
yshar esaft
er9/23/
13.Duri
ngthey ear2012,t
hecorporat
ionearned$600,000
Di
l
uti
veSecur
it
iesandEar
ni e 16-53
ngsperShar
af
terdeduct
ingal
lexpenses.Thet
axr
atewas30%.
I
nstr
uct
ions
Comput
et hepr
operear
ningspershar
efor2012.
16-54 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Sol
uti
on16-
151
Netincome $600,000
Ear
ningspershar
e: —————————=————=$1. 50
Out
standingshar
es 400,000
Neti
ncome+Inter
estaf
tert
axes
Ear
ningspershar
eassumi
ngbondconv
ersi
on: ———————————————
Assumedout
standi
ngshares
$600,
000+$245,
000
(
$350,
000×.
7=$245,
000)
;——————————=$1. 69
400,
000+100,
000
Therefor
ethebondsar
eant
idi
l
uti
ve,andear
ningspershar
eout
standi
ngof$1.
50shoul
dbe
report
ed.
Not
ethatt
heconv
ert
ibl
esecur
it
yisant
idi
l
uti
ve:
Bondi
nterestaf
tertaxes $245,000
—————————————= ————=$2. 45
Assumedincrementalshares 100,000
Ex.16-
152—Di
l
utedear
ningspershar
e.
DunbarCompanyhad400,000ordi
nar
ysharesoutst
andingduri
ngt heyear2011.Inaddit
ion,at
December31,
2011,90,
000shareswer
eissuabl
euponexer ci
seofexecuti
veshareopt
ionswhi ch
requi
rea$40cashpaymentuponexerci
se(opt
ionsgrantedin2009).Theaveragemarketprice
duri
ng2011was$50.
I
nstr
uct
ions
Comput
et henumberofshar
est
obeusedi
ndet
ermi
ningdi
l
utedear
ningspershar
efor2011.
Sol
uti
on16-
152
Shar
esoutst
andi
ng 400,
000
Add:Assumedi
ssuance 90,
000
490,
000
Deduct
:Pr
oceeds/
Aver
agemar
ketpr
ice(
$3,
600,
000÷$50) (72,
000)
Numberofshar
es 418,
000
Di
l
uti
veSecur
it
iesandEar
ni e 16-55
ngsperShar
*
Ex.16-
153—Shar
eappr
eci
ati
onr
ight
s.
OnJanuar y1,2009,OrrCo.establ
ishedashareappreciat
ionri
ghtsplanforitsexecuti
ves.They
couldreceiv
ecashatanyt i
medur ingthenextfouryearsequaltothedi f
ferencebetweent he
marketpriceoftheordi
narysharesandapr eest
abli
shedpr i
ceof$16on300, 000SARs.Thef ai
r
val
ue of t he SARs is estimate as foll
ows:12/ 31/09—$5;12/ 31/
10—$2;12/ 31/11—$3;
12/31/12—$4.OnDecember31,2011,50, 000SARsar eexerci
sed,andther emainingSARsar e
exerci
sedonDecember31, 2012.
I
nst
ructi
ons
(
a) Prepareaschedulethatshowstheamountofcompensationexpenseforeachoft
hef
our
yearsstart
ingwit
h2009.
(
b) Preparethejour
nalentr
yat12/31/10t
orecordcompensationexpense.
(
c) Preparethejour
nalentr
yat12/31/12t
orecordtheexer
ciseoftheremaini
ngSARs.
*
Sol
uti
on16-
153
(
a) Schedul
eofCompensat
ionExpense
300,
000SARs
Cumulati
ve Compensat i
on
Fair Compensat i
on Percent
age Accr
ued
Date Value Recogni
zable Accrued t
oDate Expense
12/
31/09 $5 $1,500,00025%$375, 000 $375, 000
(75,000)
12/
31/
10 2 600,00050%300, 000 (75,000)
375,000
12/
31/
11 3 900,00075%675, 000 375, 000
325,000
12/
31/
12 4 1, 000,000100%1,000,000 325, 000
(
b) Li
abi
l
ityUnderShar
eAppreci
ati
onPl
an 75,
000
Compensati
onExpense 75,
000
(
c) Li
abi
l
ityUnderShar
eAppr
eci
ati
onPl
an 1,000,000
Cash 1,000,000
16-56 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
PROBLEMS
Pr
.16-
154—Conv
ert
ibl
ebondsandshar
ewar
rant
s.
Foreachoftheunrel
atedt
ransact
ionsdescr
ibedbel
ow,pr
esentt
heent
ry(
ies)r
equi
redt
orecor
d
thebondt
ransact
ions.
1.OnAugust1,2011,LaneCorporat
ioncalledit
s10% conv ert
iblebondsforconv er
sion.The
$8,
000,000parbondswereconvertedinto320,000sharesof$20paror dinar
yshar es.On
August1,t
herewas$700,
000ofunamor ti
zedpremium appl
icablet
ot hebonds.Thefairval
ue
oftheordi
nar
yshareswas$20pershare.Ignor
ealli
nter
estpay ments.
2.Packard,I
nc.deci
destoissueconvert
ibl
ebondsi nsteadofor
dinar
yshares.Thecompany
i
ssues10%conv er
tibl
ebonds,par$3,
000,000,at97.Theinv
est
mentbankerindi
cat
esthati
f
thebondshadnotbeenconvert
ibl
etheywouldhavesoldat94.
3.GomezCompanyi ssues$5,000,
000ofbondswi thacouponr ateof8%.Tohel pthesale,
det
achabl
esharewarrantsar
eissuedattherat
eoft enwarr
antsforeach$1,000bondsold.It
i
sestimat
edthatthefairval
ueoft hebondswithoutthewarr
antsis$4,935,000.Thebonds
wit
hthewarr
antssoldat101.
Sol
uti
on16-
154
1.BondsPayabl
e 8,700,000
ShareCapit
al—Or
dinary 6,400,000
SharePremium—Ordinar
y 2,300,000
2.Cash 2,910,000
BondsPayabl
e($3,
000,
000.94) 2,820,000
SharePr
emium—Conversi
onEqui
ty 90,000
3.Cash 5,050,000
BondsPayabl
e 4,935,000
SharePr
emium—Shar
eWar
rant
s 115,000
Pr
.16-
155—Ear
ningspershar
e.
ColsonCor p.had$500,000neti
ncomein2011.OnJanuar y1,2011therewer
e200,000ordi
nary
sharesoutstandi
ng.OnApr i
l1,20,
000shar eswereissuedandonSept ember1,Adcockbought
30,
000 t r
easuryshares.There ar
e 30,000 opti
ons to buyordinar
yshares at$40 a share
outstandi
ng.Themar ketpri
ceoftheordinaryshar
esav er
aged$50dur i
ng2011.Thet axr
ateis
40%.
Dur
ing 2011,t
here were 40,
000 shares ofconver
ti
ble pr
eference shar
es out
standi
ng.The
pr
efer
enceis$100par,
pays$3.50ay eardi
v i
dend,
andisconvert
iblei
ntothr
eeordi
naryshar
es.
Colsonissued$2,
000,000of8%conver
ti
blebondsatf
acev
aluedur
ing2010.Each$1,
000bondi
s
convert
ibl
einto30ordinar
yshar
es.
Di
l
uti
veSecur
it
iesandEar
ni e 16-57
ngsperShar
16-58 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
I
nstr
uct
ions
Comput
edilut
edear
ningspershar
efor2011.Compl
etet
heschedul
eandshowal
lcomput
ati
ons.
Net Adj
ust
- Adj
usted Adj
ust
- Adjusted
Secur
it
y I
ncome ment NetI
ncome Shar
es ment Shares EPS
Sol
uti
on16-
155
Net Adj
ust
- Adj
usted Adj
ust
- Adjusted
Secur
it
y I
ncome ment NetI
ncome Shar
es ment Shares EPS
a
Ord.Shares $500,
000$(140,000)$360,
000200,000 5,
000 205,
000$1.
76
b
Opti
ons 360,000205,000 6,000 211,
0001.71
c
Bonds 360,
00096,000 456,000 211, 00060,
000271,000 1.
68
Prefer
ence 456,
000140,000596,000 271, 000120,
000391,000 1.52
a
20,
000×3/
4= 15,
000
30,
000×1/
3= (
10,
000)
5,
000SA
b
30,
000
$1,
200,
000÷$50=(
24,
000) (or
)[(
50¬–40)÷50]×30,
000=6,
000 SA
6,
000SA
$96,
000 $140,
000
c
$2,
000,
000×.
08×.
6=$96,
000 ————=$1.
60 ————=$1.
17
60,
000 120,
000
Pr
.16-
156—Basi
canddi
l
utedEPS.
Assumet
hatt
hef
oll
owi
ngdat
arel
ati
vet
oKaneCompanyf
or2012i
sav
ail
abl
e:
NetI
ncome $2,
100,
000
Transacti
onsinOr di
nar
yShar es Change Cumulat
ive
Jan.1,2012,Beginni
ngnumber 700,
000
Mar.1,2012,Purchaseoftreasuryshar
es (60,
000)640,
000
June1, 2012,
Shar espl
i
t2-1 640,0001,
280,
000
Nov .1,
2012,Issuanceofshares 120,0001,
400,
000
8%Cumul ativ
eConverti
blePr
eferenceShar
es
Soldatpar,conv
erti
blei
nto200,000ordi
nar
yshar
es
(adj
ustedforspl
it
). $1,
000,
000
Shar eOpti
ons
Exercisabl
eattheopt
ionpr
iceof$25pershar
e.Aver
age
mar ketpri
cein2012,
$30(marketpr
iceandopt
ionpr
ice
adjustedforspl
it
). 60,
000shar
es
Di
l
uti
veSecur
it
iesandEar
ni e 16-59
ngsperShar
16-60 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
I
nst
ruct
ions
(
a) Computet
hebasi
cear
ningspershar
efor2012.(
Roundtothenear
estpenny.
)
(
b) Computet
hedi
lut
edear
ningspershar
efor2012.(
Roundtothenear
estpenny.
)
Sol
uti
on16-
156
Comput
ati
onofwei
ght
edav
erageshar
esout
standi
ngdur
ingt
hey
ear
:
Januar
y1 Outst
anding 700,000
March1 Repurchase(
5/6×60,
000) (
50,000)
650,000
June1 2-
for
-1spl
it 1,
300,
000
November1 I
ssued(1/
6×120,
000) 20,
000
1,
320,
000
Addi
ti
onal
shar
esf
orpur
posesofdi
l
utedear
ningspershar
e:
Pot
enti
all
ydilut
ivesecur i
ties
8%conv erti
blepr ef
erenceshar es 200,
000
Shareoptions
Proceedsf rom exerci
seof60, 000opt i
ons(60,000×$25) $1,
500,
000
Sharesi ssueduponex erciseofoptions 60,
000
Less:treasurysharespur chasablewithproceeds
($1,500,000÷$30) 50,
000 10,
000
Dil
uti
vesecur i
ti
es—additi
onal shares 210,
000
$2,
100,
000–$80,
000
(
a) Basi
cear
ningspershar
e:——————————=$1. 53
1,
320,
000
$2,
100,
000
(
b) Di
l
utedear
ningspershar
e: ———–——————=$1. 37
1,
320,
000+210,
000
Pr
.16-
157—Basi
canddi
l
utedEPS.
Pr
esent
edbel
owi
sinf
ormat
ionr
elat
edt
oSt
arrCompany
.
1.NetI
ncome[
incl
udi
ngadi
scont
inuedoper
ati
onsgai
n(netoft
ax)of$70,
000] $230,
000
2.Capit
alSt
ruct
ure
a.Cumul at
ive8%pref
erenceshares,
$100par
,
6,
000sharesi
ssuedandoutstandi
ng $600,
000
b.$10par
,,
74,000ordi
narysharesoutstandingonJanuar
y1.
OnApri
l1,40,000shar
eswer eissuedforcash.OnOctober1,
16,
000shareswerepurchasedandr eti
red. $1,
000,
000
Di
l
uti
veSecur
it
iesandEar
ni e 16-61
ngsperShar
16-62 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Pr
.16-
157(
Cont
.)
c. OnJanuar y2ofthecurrentyear
,Star
rpurchasedOsloCor porat
ion.
Oneoft heter
msoft hepurchasewast hati
fStarr
'snetincomef ort
he
fol
l
owi ngyeari
s$2,400,000ormor e,
50,000addit
ionalshareswould
beissuedtoOslostockholdersnextyear
.
3.Ot
herInfor
mat i
on
a.Av er
agemar ketpr
iceperor
dinar
yshar
edur
ingent
ir
eyear $30
b.Incomet axrat
e 30%
I
nstr
uct
ions
Comput
eearni
ngspershar
efort
hecur
renty
ear
.
Sol
uti
on16-
157
Incomef r
om continuingoperati
ons $160,
000
Lesspr ef
erencedividends (48,
000)
Av ai
l
abletoor di
narybeforediscont
inuedoper
ati
ons 112,
000
Adddi sconti
nuedoper ati
onsgain(netoft
ax) 70,
000
Incomeav ail
abletoor di
nary $182,
000
Wei
ghtedaverageshar
esout
standi
ng:
Januar
y1 74,
000
3/4×40,000 30,
000
1/4×16,000 (4,
000)
100,
000
Basi
cear ningspershar
e:
Incomef r
om cont
inuingoperat
ions $1.
12(
a)
Discont i
nuedoper
ations(netoftax) .
70(
b)
Neti ncome $1.
82(
c)
Cal
cul
ati
ons:
$112,000 $70,
000 $182,
000
(
a) ———— (
b) ———— (
c) ————
100,000 100,
000 100,
000
Di
l
utedearni
ngspershare:
I
ncomef r
om cont
inuingoperat
ions $.75(
a)
Di
sconti
nuedoperati
ons(netoftax) .
46(
b)
NetI
ncome $1.
21(
c)
Cal
cul
ati
ons:
$112,
000 $70,
000 $182,
000
(
a) ———————— (
b) ———— (
c) ————————
100,
000+50,
000 150,
000 100,000+50,
000
Di
l
uti
veSecur
it
iesandEar
ni e 16-63
ngsperShar
Pr
.16-
158—Basi
canddi
l
utedEPS.
Thef
oll
owi
ngi
nfor
mat
ionwast
akenf
rom t
hebooksandr
ecor
dsofLudwi
ck,
Inc.
:
1.Neti
ncome $ 280,
000
2.Capit
alstr
uctur
e:
a.Conv ert
ibl
e6%bonds.Eachoft
he300,$1,
000bondsisconver
ti
ble
i
nto50or di
nar
yshar
esatthepr
esentdat
eandforthenext
10years. 300,
000
b.$10par
,200,
000ordi
nar
yshar
esi
ssuedandout
standi
ng
dur
ingt
heenti
reyear
. 2,
000,
000
c. Sharewar
rantsoutst
andi
ngt
obuy16,
000or
dinar
yshar
es
at$20pershare.
3.Otherinfor
mat i
on:
a.Bondsconv ertedduri
ngthey ear None
b.I ncomet axrate 30%
c. Conv er
ti
bledebtwasout standi ngt
heenti
rey
ear
d.Av er
agemar ketpri
cepershar eofcommonstockdur
ingt
hey
ear $32
e. War r
antswer eoutst
andingt heentir
eyear
f. War r
antsexercisedduri
ngt hey ear None
I
nstr
uct
ions
Comput
ebasicanddi
l
utedear
ningspershar
e.
Sol
uti
on16-
158
Basi
cEPS=$280,
000÷200,
000sh.=$1.
40
Net Adj
ust
- Adjust
ed Adj
ust
- Adjusted Dil
uted
Secur
it
y I
ncome ment NetI
ncome Shar
es ment Shares EPS
Ord.Shares $280,
000—$280,000 200,
000— 200,
000$1.40
Warrants 280,
000—280,000 200, 0001206,
0006, 0001.36
Conv.Bonds 280, 6002292,
000$12, 600 206,
00015,
000221,000 1.
32
16,
000
1
320,
000
———— = (
10,
000)
32
6,
000SA
$12,
600
2
000.
$300, 06.
7=$12,
600 ————=$.84
15,
000
16-64 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-65
ngsperShar
I
FRSQUESTI
ONS
Tr
ue/
Fal
se
1.i
GAAPandU. S.GAAPhavesigni
fi
cantdi
ffer
encesi
nt her
eport
ingofsecur
it
ieswi
th
char
act
eri
sti
csofdebtandequit
y,suchasconver
ti
bledebt.
2.Underi
GAAP,
all
oft
hepr
oceedsofconv
ert
ibl
edebtar
erecor
dedasl
ong-
ter
m debt
.
3.Underi
GAAP,conver
ti
blebondsare“bi
fur
cat
ed”—separ
atedi
ntotheequi
tycomponent(
the
val
ueoftheconv
ersi
onoption)oft
hebondissueandt
hedebtcomponent.
4.UnderbothU.
S.GAAPandi
GAAP,
thecal
cul
ati
onofbasi
canddi
l
utedear
ningspershar
eis
i
denti
cal.
5.Underi
GAAPr ecor
dingfort
heissuanceofBondsPay
able,
theDi
scountonBondsPay
abl
e
andthePai
d-i
nCapital
-Conver
ti
bleBondscoul
dbeuti
li
zed.
Answerst
oTr
ue/
Fal
se:
1.True
2.False
3.True
4.False
5.True
Mul
ti
pleChoi
ce:
1.Wit
hr egardtorecogni
zi
ngst ock-
basedcompensat i
on
a.iGAAPandU. S.GAAPf oll
owthesamemodel .
b.iGAAPandU. S.GAAPst andardsareunder
goingmajorr ef
orm onval
uat
ionissues.
c. i
thasbeenagr eedthatthesestandar
dswi l
lnotbemer gedduetothedif
fer
encesin
curr
encies.
d.t heref
orm ofU.S.GAAPst andardswil
lnotbeaddresseduntil
iGAAPstandardshavebeen
fi
nali
zed.
2.Thepr i
maryi
GAAPr
epor
ti
ngst
andar
dsr
elat
edt
ofi
nanci
ali
nst
rument
s,i
ncl
udi
ngdi
l
uti
ve
securi
ti
es,
is
a.I AS33.
b.I AS39.
c. IFRS2.
d.I AS2.
16-66 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
3.When$5, 000,
000i
nconv ert
ibl
ebondsareissuedatparwith$800,000inv al
ueoftheequi
ty
opt
ionembeddedi nthebond,theiGAAPjournalent
rywil
li
ncludeadebi tof
a.$800, 000toPaid-i
nCapi t
al— Conv er
tibl
eBondsandacr edittoPr emium onBonds
Pay abl
e.
b.$800, 000toPremium onBondsPay ableandacr edittoPai d-
inCapital— Conver
ti
ble
Bonds.
c. $800,000toDiscountonBondsPay ableandacr edittoPai d-
inCapital— Conver
ti
ble
Bonds.
d.$4, 200,
000toCashal ongwithadebitof$800,000toDiscountonBondsPay abl
eanda
creditt
oBondsPayableandacr edi
ttoPaid-
inCapi
tal—Conv erti
bleBonds.
4.Wit
hr egar
dtocont ract
sthatcanbesettl
edineit
hercashorshar
es
a.iGAAPr equiresthatshar
esettl
ementmustbeused.
b.iGAAPgi vescompani esachoiceofei
thercashorshar
es.
c. U.S.GAAPr equir
esthatshar
esettl
ementmustbeused.
d.t heFASBpr oj
ectproposesthattheIASBadopttheU.S.GAAPappr
oach,r
equi
ri
ngt
hat
shareset
tlementmustbeused.
5.Wi t
hregardt orecogni zingstock-basedcompensat ionunderiGAAPt hef ai
rval
ueofshar es
andoptionsawar dedt oempl oyeesi srecognized
a.int hefir
stf i
scal periodoftheempl oyees’servi
ce.
b.ov erthefiscal periodstowhi chtheempl oyees’ser
vicesrel
ate.
c. i
nt helastfiscal periodoftheempl oyees’serv
icewhent hetotalvaluecanbecalculated.
d.afterlastfiscal periodoftheempl oyees’servi
cewhent hetotalvaluecanbecalculated.
Answer
stoMul
ti
pleChoi
ce:
1.a
2.b
3.c
4.a
5.b
Shor
tAnswer
1.Bri
efl
ydescri
besomeoft hesimil
ari
ti
esanddi f
fer
encesbetweenU.S.GAAPandiGAAP
wit
hrespecttotheaccount
ingfordi
lut
ivesecuri
ti
es,st
ock-
basedcompensat
ion,
and
ear
ningspershare.
1.i
GAAPandU. S.GAAParesubst anti
all
yt hesameintheaccountingfordilut
ivesecur
iti
es,
stock-basedcompensation,andearningspershare.Forexample,bothiGAAPandU. S.
GAAPf ol
lowthesamemodel forrecognizi
ngstock-
basedcompensat i
on.Thatis,t
hefair
valueofsharesandopt i
onsawar dedt oemployeesisrecogni
zedov ertheperiodto
whi chtheemployees’
servicesrel
ate.
Themai ndiffer
encesconcern(1)theaccountingforconver
ti
bledebt.UnderU.S.GAAP
alloftheproceedsofconverti
bledebtarerecordedaslongterm debt.UnderiGAAP,
converti
blebondsar e“
bif
urcated”
, orseparat
edintotheequit
ycomponent–t heval
ueof
theconv er
sionoption–ofthebondi ssueandt hedebtcomponent ;(
2)ami nor
dif
ferenceinEPSr epor
ti
ng–t heFASBal l
owscompani estorebutthepresumptiont
hat
Di
l
uti
veSecur
it
iesandEar
ni e 16-67
ngsperShar
contractsthatcanbeset tl
edineit
hercashorshar
eswi ll
besettledi nshares.i
GAAP
requir
est hatsharesettl
ementmustbeusedi nthi
ssituati
on;(
3)ot herEPSdi ffer
ences
rel
atet othetreasurystockmethodandhowt heproceedsfrom extinguishmentofa
l
iabil
ityshouldbeaccount edforandhowt omakethecomput ati
onf ort
hewei ghted-
averageofcont ingent
lyissuabl
eshares.
2.Bri
efl
ydiscusst
heconvergenceef
for
tsthatareunderwaybyt
heI
ASBandFASBi
nthear
ea
ofdil
uti
vesecur
it
iesandearni
ngspershare.
2.TheFASBhasbeenwor ki
ngonast andardt hatwil
lli
kel
yconv er getoiGAAPi nthe
accountingforconver
tibledebt.SimilartotheFASB, theIASBi sexami ningt he
cl
assifi
cationofhybri
dsecur it
ies;t
heI ASBi sseeki
ngcommentonadi scussion
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