Professional Documents
Culture Documents
CoursewideContent
UpdatesandErrata
WebLinks
PresentandFutureValue
CheckFigures
PracticeExams
KaplanCPAReviewSims
Glossary
AnnualReports
FASBUpdates
ChapterQuiz
(Seerelatedpages)
Enterthelettercorrespondingtotheresponsethatbestcompleteseachofthefollowingstatementsorquestions.
OnJanuary1,2013,OlympicInsuranceCompanygranted30,000stockoptionstocertainexecutives.Theoptionsareexercisablenosooner
thanDecember31,2015andexpireonJanuary1,2016.Eachoptioncanbeexercisedtoacquireoneshareof$1parcommonstockfor$12.
Anoptionpricingmodelestimatesthefairvalueoftheoptionstobe$5onthedateofgrant.ThemarketpriceofOlympic'sstockwasas
follows:
Chapter19
Quizzes
ChapterQuiz
MoreResources
PowerPointPresentations
ExcelTemplates
AltProblems
Flashcards
PracticeExams
*NarratedSlides
WhatamountshouldOlympicrecognizeascompensationexpensefor2013?
A) $10,000.
B) $20,000.
C) $30,000.
D) $50,000.
Whichofthefollowingstatementsisuntrueregardingearningspershare?
A) Acompanyhasasimplecapitalstructureifithasnooutstandingsecuritiesthatcouldpotentiallydiluteearningspershare.
B) Whensharesareretired,theyaretimeweightedforthefractionoftheperiodtheywerenotoutstanding,priortobeingsubtracted
fromthenumberofsharesoutstandingduringthereportingperiod.
C) Dividendspaidonnonconvertiblepreferredstockoutstandingshouldbesubtractedfromreportednetincome.
D) Anynewsharesissuedduringtheperiodinastockdividendorstocksplitaretimeweightedbythefractionoftheperiodtheywere
outstandingandthenaddedtothenumberofsharesoutstandingfortheperiod.
December31,2013and2014,FristCompanyhadoutstanding50millioncommonsharesand4millionsharesof10%,$10parcumulative
preferredstock.Netincomefor2014was$20million.Nodividendsweredeclaredin2013or2014.EPSfor2014was:
A) $.32.
B) $.37.
C) $.40.
D) $.48.
AtDecember31,2013,thebalancesheetofGoodeCorporationincluded80millioncommonshares.OnOctober1,2014,Gooderetired4
millionsharesaspartofasharerepurchaseprogram.NetincomefortheyearendedDecember31,2014,was$400million.Goode's2014
EPSshouldbe:
A) $4.94.
B) $5.00.
C) $5.06.
D) $5.26.
AtDecember31,2013,thebalancesheetofDarwinCorporationincluded8millioncommonsharesand4millionnonconvertiblepreferred
shares.OnJuly1,2014,Darwinissueda5for4stocksplitonitscommonsharesandpaid$10millioncashdividendsonthepreferredstock.
NetincomefortheyearendedDecember31,2014,was$40million.Darwin's2014EPSshouldbe:
A) $3.00.
B) $4.00.
C) $5.00.
D) $5.55.
Whencalculatingbasicearningspershare,netincomeisreducedbydividendsonnonconvertiblecumulativepreferredstock:
A) Whetherdeclaredornot.
B) Onlyifdeclared.
C) Whetherdilutiveornot.
D) Undernocircumstances.
Whencalculatingtheweightedaveragenumberofsharesoutstanding,thenumberofsharesarenottimeweightedbythefractionofthe
reportingperiodtheyare(arenot)outstandingfor:
A) Commonsharesretired.
B) Commonsharesissuedduringtheperiodasastockdividend.
C) Sharesobtainableinexecutivestockoptionsgrantedinmidyear.
D) Newcommonsharessoldduringtheperiod.
Abusinessisdeemedtohaveacomplexcapitalstructurewhenithasoutstanding:
A) Threetypesofsecuritiesormorebesidescommonstock.
B) Executivestockoptions.
C) Bondspayable.
D) Cumulativepreferredstock.
ToincorporatetheeffectofoutstandingstockoptionsinthecalculationofdilutedEPS:
A) WouldbeinappropriatebecauseoptionsareconsideredonlywhencalculatingbasicEPS.
B) WewouldneverincreaseordecreasethenumeratoroftheEPSfraction.
C) Weassumecommonsharesareissuedattheaveragemarketpriceandrepurchasedattheexerciseprice.
D) Weassumetheoptionswereexercisedatmidyear.
10
WhencalculatingdilutedEPS,whichofthefollowing,ifdilutive,wouldcausetheweightedaveragenumberofsharestoincrease?
A) Dividendsonpreferredstock:YesStockoptions:No
B) Dividendsonpreferredstock:YesStockoptions:Yes
C) Dividendsonpreferredstock:NoStockoptions:Yes
D) Dividendsonpreferredstock:NoStockoptions:No
11
Whencalculatingearningspershare,theeffectofaftertaxinterestexpensepaidonconvertiblebondsthataredilutiveisto:
A) Increasenetincomefordilutedearningspershareandnotforbasicearningspershare.
B) Decreasenetincomeforbasicearningspershareandnotfordilutedearningspershare.
C) Increasenetincomeforbothbasicearningspershareanddilutedearningspershare.
D) Decreasenetincomeforbothbasicearningspershareanddilutedearningspershare.
12
Commonstockoptionsthatareantidilutivegenerallyaffectthecalculationof:
A) BasicEPS:YesDilutedEPS:Yes
B) BasicEPS:YesDilutedEPS:No
C) BasicEPS:NoDilutedEPS:No
D) BasicEPS:NoDilutedEPS:Yes
13
Convertiblebondsthataredilutivegenerallyaffectthecalculationof:
A) BasicEPS:YesDilutedEPS:No
B) BasicEPS:YesDilutedEPS:No
C) BasicEPS:NoDilutedEPS:No
D) BasicEPS:NoDilutedEPS:Yes
14
Executivestockoptionsareoutstandingallyearthatpermitexecutivestobuy12millioncommonsharesat$50.Theaveragemarketpriceof
thecommonstockwas$60.Whencalculatingdilutedearningspershare,theassumedexerciseoftheseoptionswillincreasetheweighted
averagenumberofsharesoutstandingby:
A) zeroshares.
B) 2millionshares.
C) 8millionshares.
D) 10millionshares.
15
Executivestockoptionsareoutstandingallyearthatpermitexecutivestobuy12millioncommonsharesat$60.Theaveragemarketpriceof
thecommonstockwas$50.Whencalculatingdilutedearningspershare,theassumedexerciseoftheseoptionswillincreasetheweighted
averagenumberofsharesoutstandingby:
A) zeroshares.
B) 2millionshares.
C) 8millionshares.
D) 10millionshares.
16
Whichofthefollowingstatementsistrueregardingdilutedearningspershare?
A) Itisassumedthatstockoptionsareexercisedatthebeginningoftheperiod(oratthetimetheoptionsareissued,iflater)andthe
cashproceedsreceivedareusedtobuyback(astreasurystock)asmanyofthosesharesascanbeacquiredattheclosingmarket
pricefortheperiod.
B) Toincorporateconvertiblebondsintothecalculation,thedenominatoroftheEPSfractionisdecreasedbytheadditionalcommon
sharesassumed.
C) Toincorporateconvertiblesecuritiesintothecalculation,thenumeratorisdecreasedbytheinterest(aftertax)thatwouldhavebeen
avoidedintheeventofconversion.
D) ContingentlyissuablesharesareconsideredoutstandinginthecomputationofdilutedEPSwhenanyconditionsforissuanceare
currentlybeingmet.
17
Whichofthefollowingisnotdisclosedregardingearningspershare?
A) BasicEPSforincomefromcontinuingoperations.
B) DilutedEPSfornetincome.
C) Cashpaidpershare.
D) Reconciliationofthenumeratoranddenominatorusedinthecomputations.
18
WhiteCompanyisacalendaryearfirmwithoperationsinseveralcountries.AtJanuary1,2013,thecompanyhadissued80,000executive
stockoptionspermittingexecutivestobuy40,000sharesofstockfor$25.Thevestingscheduleis20%thefirstyear,30%thesecondyear,
and50%thethirdyear(gradedvesting).Thefairvalueoftheoptionsisestimatedasfollows:
Whatisthecompensationexpenserelatedtotheoptionstoberecordedin2014?
A) $96,000.
B) $192,000.
C) $256,000.
D) $280,000.
19
BlueCompanyisacalendaryearfirmwithoperationsinseveralcountries.AtJanuary1,2013,thecompanyhadissued40,000executive
stockoptionspermittingexecutivestobuy40,000sharesofstockfor$30.Thevestingscheduleis20%thefirstyear,30%thesecondyear,
and50%thethirdyear(gradedvesting).Thefairvalueoftheoptionsisestimatedasfollows:
AssumingBluepreparesitsfinancialstatementsinaccordancewithInternationalFinancialReportingStandards,whatisthecompensation
expenserelatedtotheoptionstoberecordedin2014?
A) $40,000.
B) $60,000.
C) $95,000.
D) $130,000.
20
UnderIFRS,adeferredtaxassetforstockoptions
A) iscreatedforthecumulativeamountofthefairvalueoftheoptionsthecompanyhasrecordedforcompensationexpense.
B) istheportionoftheoptions'intrinsicvalueearnedtodatetimesthetaxrate.
C) isthetaxratetimestheamountofcompensation.
D) isn'tcreatediftheawardis"inthemoney"thatis,ithasintrinsicvalue.
SubmitAnswers
Tolearnmoreaboutthebookthiswebsitesupports,pleasevisititsInformationCenter.
Copyright 2013McGrawHillEducation.
AnyuseissubjecttotheTermsofUseandPrivacyNotice|ReportPiracy