Question;70. On January 2, 2006, Carr Co. issued 10-year convertible bonds;at 105. During 2008, these bonds were converted into common stock having an;aggregate par value equal to the total face amount of the bonds. At conversion;the market price of Carr?s common stock was 50 percent above its par value. On January 2, 2006, cash;proceeds from the issuance of the convertible bonds should be reported as;a. paid-in;capital for the entire proceeds.;b. paid-in;capital for the portion of the proceeds attributable to the conversion feature;and as a liability for the balance.;c. a;liability for the face amount of the bonds and paid-in capital for the premium;over the face amount.;d. a;liability for the entire proceeds.;71. Kane Co. issued bonds with detachable;common stock warrants. Only the warrants had a known market value. The sum of;the fair value of the warrants and the face amount of the bonds exceeds the;cash proceeds. This excess is reported as;a. Discount;on Bonds Payable.;b. Premium;on Bonds Payable.;c. Common;Stock Subscribed.;d. Paid-in;Capital in Excess of Par?Stock Warrants.;72. On January 1, 2007, Doane Corp. granted an employee an option;to purchase 6,000 shares of Doane's $5 par value common stock at $20 per share.;The Black-Scholes option pricing model determines total compensation expense to;be $140,000. The option became exercisable on December 31, 2008, after the employee;completed two years of service. The market prices of Doane's stock were as;follows;January 1, 2007 $30;December 31, 2008 50;For 2008, Doane should recognize;compensation expense under the fair value method of;a. $90,000.;b. $30,000.;c. $70,000.;d. $0.;*73. On January 2, 2007, for past services, Titus Corp. granted;Ken Pine, its president, 16,000 stock appreciation rights that are exercisable;immediately and expire on January;2, 2008. On exercise, Pine is entitled to receive cash for the;excess of the market price of the stock on the exercise date over the market;price on the grant date. Pine did not exercise any of the rights during 2007.;The market price of Titus's stock was $30 on January 2, 2007, and $45 on December 31, 2007. As a;result of the stock appreciation rights, Titus should recognize compensation;expense for 2007 of;a. $0.;b. $80,000.;c. $240,000.;d. $480,000.;74. With respect to the computation of earnings;per share, which of the following would be most indicative of a simple capital;structure?;a. Common;stock, preferred stock, and convertible securities outstanding in lots of even;thousands;b. Earnings;derived from one primary line of business;c. Ownership;interest consisting solely of common stock;d. None;of these;75. In computing earnings per share for a;simple capital structure, if the preferred stock is cumulative, the amount that;should be deducted as an adjustment to the numerator (earnings) is the;a. preferred;dividends in arrears.;b. preferred;dividends in arrears times (one minus the income tax rate).;c. annual;preferred dividend times (one minus the income tax rate).;d. none;of these.;76. In computations of weighted average of;shares outstanding, when a stock dividend or stock split occurs, the additional;shares are;a. weighted;by the number of days outstanding.;b. weighted;by the number of months outstanding.;c. considered;outstanding at the beginning of the year.;d. considered;outstanding at the beginning of the earliest year reported.;77. What effect will the acquisition of;treasury stock have on stockholders' equity and earnings per share;respectively?;a. Decrease;and no effect;b. Increase;and no effect;c. Decrease;and increase;d. Increase;and decrease;S78. Due to the;importance of earnings per share information, it is required to be reported by;all;Public Companies Nonpublic Companies;a. Yes Yes;b. Yes No;c. No No;d. No Yes;P79. A;convertible bond issue should be included in the diluted earnings per share;computation as if the bonds had been converted into common stock, if the effect;of its inclusion is;Dilutive Antidilutive;a. Yes Yes;b. Yes No;c. No Yes;d. No No;80. When computing diluted earnings per share;convertible bonds are;a. ignored.;b. assumed;converted whether they are dilutive or antidilutive.;c. assumed;converted only if they are antidilutive.;d. assumed;converted only if they are dilutive.;81. Dilutive convertible securities must be used;in the computation of;a. basic;earnings per share only.;b. diluted;earnings per share only.;c. diluted;and basic earnings per share.;d. none;of these.;82. In computing earnings per share, the;equivalent number of shares of convertible preferred stock are added as an;adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which;amount should then be added as an adjustment to the numerator (net earnings)?;a. Annual;preferred dividend;b. Annual;preferred dividend times (one minus the income tax rate);c. Annual;preferred dividend times the income tax rate;d. Annual;preferred dividend divided by the income tax rate;83. In the diluted earnings per share;computation, the treasury stock method is used for options and warrants to;reflect assumed reacquisition of common stock at the average market price;during the period. If the exercise price of the options or warrants exceeds the;average market price, the computation would;a. fairly;present diluted earnings per share on a prospective basis.;b. fairly;present the maximum potential dilution of diluted earnings per share on a;prospective basis.;c. reflect;the excess of the number of shares assumed issued over the number of shares;assumed reacquired as the potential dilution of earnings per share.;d. be;antidilutive.;84. In applying the treasury stock method to;determine the dilutive effect of stock options and warrants, the proceeds;assumed to be received upon exercise of the options and warrants;a. are;used to calculate the number of common shares repurchased at the average market;price, when computing diluted earnings per share.;b. are;added, net of tax, to the numerator of the calculation for diluted earnings per;share.;c. are;disregarded in the computation of earnings per share if the exercise price of;the options and warrants is less than the ending market price of common stock.;d. none;of these.;85. When applying the treasury stock method for;diluted earnings per share, the market price of the common stock used for the;repurchase is the;a. price;at the end of the year.;b. average;market price.;c. price;at the beginning of the year.;d. none;of these.;86. Antidilutive securities;a. should;be included in the computation of diluted earnings per share but not basic earnings;per share.;b. are;those whose inclusion in earnings per share computations would cause basic;earnings per share to exceed diluted earnings per share.;c. include;stock options and warrants whose exercise price is less than the average market;price of common stock.;d. should;be ignored in all earnings per share calculations.;*87. Assume there are two dilutive convertible;securities. The one that should be used;first to recalculate earnings per share is the security with the;a. greater;earnings adjustment.;b. greater;earnings per share adjustment.;c. smaller;earnings adjustment.;d. smaller;earnings per share adjustment.
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