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DILUTIVE SECURITIES AND EARNINGS solving questions mcq

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Question;43. Jenks Co.has $2,500,000 of 8% convertible;bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par;value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2007, the holders of $800,000 bonds exercised the;conversion privilege. On that date the market price of the bonds was 105 and;the market price of the common stock was $36. The total unamortized bond;premium at the date of conversion was $175,000. Jenks should record, as a;result of this conversion, a;a. credit;of $136,000 to Paid-in Capital in Excess of Par.;b. credit;of $120,000 to Paid-in Capital in Excess of Par.;c. credit;of $56,000 to Premium on Bonds Payable.;d. loss;of $8,000.;44. On July 1, 2007, an interest payment date, $60,000 of Risen;Co. bonds were converted into 1,200 shares of Risen Co. common stock each;having a par value of $45 and a market value of $54. There is $2,400;unamortized discount on the bonds. Using the book value method, Risen would;record;a. no;change in paid-in capital in excess of par.;b. a;$3,600 increase in paid-in capital in excess of par.;c. a;$7,200 increase in paid-in capital in excess of par.;d. a;$4,800 increase in paid-in capital in excess of par.;45. Quayle Corporation had two issues of;securities outstanding: common stock and an 8% convertible bond issue in the;face amount of $16,000,000. Interest payment dates of the bond issue are June;30th and December 31st. The conversion clause in the bond indenture entitles;the bondholders to receive forty shares of $20 par value common stock in;exchange for each $1,000 bond. On June 30, 2007, the holders of $2,400,000 face value bonds;exercised the conversion privilege. The market price of the bonds on that date;was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the;date of conversion was $1,000,000. In applying the book value method, what;amount should Quayle credit to the account "paid-in capital in excess of;par," as a result of this conversion?;a. $330,000.;b. $160,000.;c. $1,440,000.;d. $720,000.;Use the following information for questions 46;through 48.;Gomez Corporation issued $3,000,000 of;9%, ten-year convertible bonds on July 1, 2007 at 96.1 plus accrued interest. The bonds were;dated April 1, 2007;with interest payable April 1 and October 1. Bond discount is amortized;semiannually on a straight-line basis. On April 1, 2008, $600,000 of these bonds were;converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time;of conversion.;46. If "interest payable" were;credited when the bonds were issued, what should be the amount of the debit to;interest expense" on October;1, 2007?;a. $64,500.;b. $67,500.;c. $70,500.;d. $135,000.;47. What should be the amount of the;unamortized bond discount on April;1, 2008 relating to the bonds converted?;a. $23,400.;b. $21,600.;c. $11,700.;d. $22,200.;48. What was the effective interest rate on the;bonds when they were issued?;a. 9%;b. Above;9%;c. Below;9%;d. Cannot;determine from the information given.;49. Darby Corporation;issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000;shares of common stock (par value $40). At the time of the conversion, the;unamortized premium is $2,000, the market value of the bonds is $110,000, and;the stock is quoted on the market at $60 per share. If the bonds are converted;into common, what is the amount of paid-in capital in excess of par to be recorded;on the conversion of the bonds?;a. $25,000;b. $22,000;c. $32,000;d. $40,000;50. In 2006, Berger, Inc., issued for $103 per;share, 60,000 shares of $100 par value convertible preferred stock. One share;of preferred stock can be converted into three shares of Berger's $25 par value;common stock at the option of the preferred stockholder. In August 2007, all of;the preferred stock was converted into common stock. The market value of the;common stock at the date of the conversion was $30 per share. What total amount;should be credited to additional paid-in capital from common stock as a result;of the conversion of the preferred stock into common stock?;a. $1,020,000.;b. $780,000.;c. $1,500,000.;d. $1,680,000.;51 On December 1, 2007, Howell Company issued at 103, two;hundred of its 9%, $1,000 bonds.;Attached to each bond was one detachable stock warrant entitling the;holder to purchase 10 shares of Howell's common stock. On December 1, 2007, the market value of;the bonds, without the stock warrants, was 95, and the market value of each;stock purchase warrant was $50. The;amount of the proceeds from the issuance that should be accounted for as the;initial carrying value of the bonds payable would be;a. $193,640.;b. $195,700.;c. $200,000.;d. $206,000.;52. On March 1, 2007, Yang Corporation issued $800,000 of 8%;nonconvertible bonds at 104, which are due on February 28, 2027. In addition, each $1,000 bond;was issued with 25 detachable stock warrants, each of which entitled the;bondholder to purchase for $50 one share of Yang common stock, par value $25.;The bonds without the warrants would normally sell at 95. On March 1, 2007, the fair;market value of Yang?s common stock was $40 per share and the fair market value;of the warrants was $2.00. What amount should Yang record on March 1, 2007 as paid-in capital from;stock warrants?;a. $28,800;b. $33,600;c. $41,600;d. $40,000;53. During 2007, Cartel Company issued at 104 three;hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling;the holder to purchase 15 shares of Cartel?s common stock was attached to each;bond. At the date of issuance, the market value of the bonds, without the stock;warrants, was quoted at 96. The market value of each detachable warrant was;quoted at $40. What amount, if any, of the proceeds from the issuance should be;accounted for as part of Cartel?s stockholders' equity?;a. $0;b. $12,000;c. $12,480;d. $11,856;54. On April 7, 2007, Meade Corporation sold a $2,000,000;twenty-year, 8 percent bond issue for $2,120,000. Each $1,000 bond has two;detachable warrants, each of which permits the purchase of one share of the;corporation's common stock for $30. The stock has a par value of $25 per share.;Immediately after the sale of the bonds, the corpo-ration's securities had the;following market values;8% bond without warrants $1,008;Warrants 21;Common stock 28;What accounts should Meade;credit to record the sale of the bonds?;a. Bonds;Payable $2,000,000;Premium;on Bonds Payable 77,600;Paid-in;Capital?Stock Warrants 42,400;b. Bonds Payable $2,000,000;Premium;on Bonds Payable 16,000;Paid-in;Capital?Stock Warrants 84,000;c. Bonds Payable $2,000,000;Premium;on Bonds Payable 35,200;Paid-in;Capital?Stock Warrants 84,800;d. Bonds Payable $2,000,000;Premiums;on Bonds Payable 120,000;Use the following information for questions 55;and 56.;On May 1, 2007, Logan Co. issued $300,000 of 7%;bonds at 103, which are due on April;30, 2017. Twenty detachable stock warrants entitling the holder to;purchase for $40 one share of Logan?s;common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at;96. On May 1, 2007;the fair value of Logan?s;common stock was $35 per share and of the warrants was $2.;55. On May 1, 2007, Logan;should credit Paid-in Capital from Stock Warrants for;a. $11,520.;b. $12,000.;c. $12,360.;d. $21,000.;56. On May 1, 2007, Logan;should record the bonds with a;a. discount;of $12,000.;b. discount;of $3,360.;c. discount;of $3,000.;d. premium;of $9,000.;57. On July 4, 2007, Diaz Company issued for $4,200,000 a total;of 40,000 shares of $100 par value, 7% noncumulative preferred stock along with;one detachable warrant for each share issued.;Each warrant contains a right to purchase one share of Diaz $10 par;value common stock for $15 per share. The stock without the warrants would;normally sell for $4,100,000. The market price of the rights on July 1, 2007, was $2.50 per;right. On October 31, 2007;when the market price of the common stock was $19 per share and the market;value of the rights was $3.00 per right, 16,000 rights were exercised. As a;result of the exercise of the 16,000 rights and the issuance of the related;common stock, what journal entry would Diaz make?;a. Cash....................................................................................... 240,000;Common;Stock........................................................ 160,000;Paid-in;Capital in Excess of Par............................... 80,000;b. Cash....................................................................................... 240,000;Paid-in;Capital?Stock Warrants.......................................... 40,000;Common;Stock........................................................ 160,000;Paid-in;Capital in Excess of Par............................... 120,000;c. Cash....................................................................................... 240,000;Paid-in;Capital?Stock Warrants.......................................... 100,000;Common;Stock........................................................ 160,000;Paid-in;Capital in Excess of Par............................... 180,000;d. Cash....................................................................................... 240,000;Paid-in;Capital?Stock Warrants.......................................... 60,000;Common;Stock........................................................ 160,000;Paid-in;Capital in Excess of Par............................... 140,000;58. Sloane Corporation;offered detachable 5-year warrants to buy one share of common stock (par value;$5) at $20 (at a time when the stock was selling for $32). The price paid for;2,000, $1,000 bonds with the warrants attached was $205,000. The market price;of the Sloane bonds without the warrants was $180,000, and the market price of;the warrants without the bonds was $20,000. What amount should be allocated to;the warrants?;a. $20,000;b. $20,500;c. $24,000;d. $25,000;59. On January 1, 2008, Porter Company;granted stock options to officers and key employees for the purchase of 10,000;shares of the company's $1 par common stock at $20 per share as additional;compensation for services to be rendered over the next three years. The options;are exercisable during a five-year period beginning January 1, 2011 by grantees still employed by;Porter. The Black-Scholes option pricing model determines total compensation;expense to be $90,000. The market price of common stock was $26 per share at;the date of grant. The journal entry to record the compensation expense related;to these options for 2008 would include a credit to the Paid-in Capital?Stock;Options account for;a. $0.;b. $18,000.;c. $20,000.;d. $30,000.;60. On January 1, 2008, Downs Company granted;Tim Wright, an employee, an option to buy 1,000 shares of Downs Co. stock for;$25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model;total compensation expense is determined to be $7,500. Wright exercised his;option on September 1, 2008;and sold his 1,000 shares on December;1, 2008. Quoted market prices of Downs Co. stock during 2008 were;January 1 $25;per share;September 1 $30;per share;December 1 $34;per share;The service period is for three years beginning January 1, 2008. As a result of the;option granted to Wright, using the fair value method, Downs;should recognize compensation expense for 2008 on its books in the amount of;a. $9,000.;b. $7,500.;c. $2,500.;d. $1,500. 61. On December 31, 2007, Filmore Company;granted some of its executives options to purchase 50,000 shares of the company's;$10 par common stock at an option price of $50 per share. The options become;exercisable on January 1;2008, and represent compensation for executives' services over a;three-year period beginning January;1, 2008. The Black-Scholes option pricing model determines total;compensation expense to be $300,000. At December 31, 2008, none of the executives had;exercised their options. What is the impact on Filmore's net income for the;year ended December 31;2008 as a result of this transaction under the fair value method?a. $100,000;increaseb. $0c. $100,000;decreased. $300,000;decrease 62. Yunger;Corp. on January 1, 2004;granted stock options for 40,000 shares of its $10 par value common stock to;its key employees. The market price of the common stock on that date was $23;per share and the option price was $20. The Black-Scholes option pricing model;determines total compensation expense to be $240,000. The options are;exercisable beginning January;1, 2007, provided those key employees are still in Yunger?s employ;at the time the options are exercised. The options expire on January 1, 2008.On January 1, 2007, when the market price of the;stock was $29 per share, all 40,000 options were exercised. The amount of;compensation expense Yunger should;record for 2006 under the fair value method isa. $0.b. $40,000.c. $80,000.d. $120,000. 63. On December 31, 2007, Jansen;Company granted some of its executives options to purchase 45,000 shares of the;company's $50 par common stock at an option price of $60 per share. The;Black-Scholes option pricing model determines total compensation expense to be;$900,000. The options become exercisable on January 1, 2008, and represent compensation;for executives' past and future services over a three-year period beginning January 1, 2008. What is the;impact on Jansen's total stockholders' equity for the year ended December 31, 2007, as a;result of this transaction under the fair value method?a. $900,000;decreaseb. $300,000;decreasec. $0d. $300,000;increase 64. On June 30, 2004, Sealey Corporation granted compensatory;stock options for 30,000 shares of its $20 par value common stock to certain of;its key employees. The market price of the common stock on that date was $36;per share and the option price was $30.;The Black-Scholes option pricing model determines total compensation;expense to be $360,000. The options are exercisable beginning January 1, 2007, provided;those key employees are still in Sealey?s employ at the time the options are;exercised. The options expire on June 30, 2008.On January 4, 2007, when the market price of the;stock was $42 per share, all 30,000 options were exercised. What should be the;amount of compensation expense recorded by Sealey Corporation for the calendar;year 2006 using the fair value method?a. $0.b. $144,000.c. $180,000.d. $360,000. 65. In order to retain certain key executives, Tanner;Corporation granted them incentive stock options on December 31, 2006. 50,000 options;were granted at an option price of $35 per share. Market prices of the stock were as follows:December 31, 2007 $46 per shareDecember 31, 2008 51 per shareThe options were granted as;compensation for executives' services to be rendered over a two-year period;beginning January 1, 2007.;The Black-Scholes option pricing model determines total compensation expense to;be $500,000. What amount of compensation expense should Tanner recognize as a;result of this plan for the year ended December 31, 2007 under the fair value method?a. $250,000.b. $500,000.c. $550,000.d. $1,750,000. 66. Kiner, Inc. had 40,000 shares of treasury;stock ($10 par value) at December;31, 2006, which it acquired at $11 per share. On June 4, 2007, Kiner issued 20,000;treasury shares to employees who exercised options under Kiner's employee stock;option plan. The market value per share was $13 at December 31, 2006, $15 at June 4, 2007, and $18 at December 31, 2007. The;stock options had been granted for $12 per share. The cost method is used. What;is the balance of the treasury stock on Kiner's balance sheet at December 31, 2007?a. $140,000.b. $180,000.c. $220,000.d. $240,000.;Use the following information for questions 67;through 69.On January 1, 2006, Merken, Inc. established a;stock appreciation rights plan for its executives. It entitled them to receive cash at any time;during the next four years for the difference between the market price of its;common stock and a pre-established price of $20 on 60,000 SARs. Current market;prices of the stock are as follows:January 1, 2006 $35 per shareDecember 31, 2006 38 per shareDecember 31, 2007 30 per shareDecember 31, 2008 33 per shareCompensation expense relating to the;plan is to be recorded over a four-year period beginning January 1, 2006. *67. What amount of compensation expense should Merken;recognize for the year ended December;31, 2006?a. $180,000b. $270,000c. $225,000d. $1,080,000 *68. What amount of compensation expense should Merken;recognize for the year ended December;31, 2007?a. $0b. $30,000c. $300,000d. $150,000 *69. On December 31, 2008, 16,000 SARs are exercised by;executives. What amount of compensation expense should Merken recognize for the;year ended December 31, 2008?a. $285,000b. $195,000c. $585,000;d. $78,000="msonormal">

 

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