CHAPTER 16
DILUTIVE SECURITIES AND EARNINGS PER SHARE
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Dilutive Securities—Conceptual
Answer No. Description
T 1. Accounting for convertible bond issue.
F 2. Reporting gain/loss on convertible debt retirement.
T 3. Reporting additional payment to encourage conversion.
F 4. Exercise of convertible preferred stock.
F 5. Convertible preferred stock exercise.
T 6. Allocating proceeds between debt and detachable warrants.
F 7. Allocating proceeds from nondetachable warrants.
T 8. Intrinsic value of a stock option.
F 9. Compensation expense in fair value method.
T 10. Service period in stock option plans.
F 11. Accounting for nonexercise of stock options.
F 12. Accounting for stock option forfeiture.
T 13. Cumulative preferred stock and EPS.
F 14. Restating shares for stock dividends and stock splits.
T 15. Stock dividend and weighted-average shares outstanding.
F 16. Preferred dividends and income before extraordinary items.
T. 17. Reporting EPS in complex capital structure.
F. 18. Dilutive stock options.
T 19. Contingent issue shares.
F 20. Reporting EPS for income from continuing operations.
MULTIPLE CHOICE—Dilutive Securities, Conceptual
Answer No. Description
d 21. Nature of convertible bonds.
d 22. Recording conversion of bonds.
b 23. Classification of early extinguishment of convertible bonds.
c S
24. Reasons for issuing convertible debt.
S
a 25. Reporting gain/loss on conversion of bonds.
d S
26. Accounting for conversion of preferred stock.
b 27. Recording conversion of preferred stock.
d 28. Bonds issued with detachable stock warrants.
d 29. Debt equity features of debt issued with stock warrants.
d 30. Classification of stock warrants outstanding.
P
d 31. Bonds issued with detachable stock warrants.
c P
32. Distribution of stock rights.
S
b 33. Difference between convertible debt and stock warrants.
c S
34. Characteristics of noncompensatory stock option plan.
a 35. Measurement of compensation in stock option.
c 36. Recognition of compensation expense in a stock option plan.
a 37. Compensation expense in a stock option plan.
d 38. Characteristics of noncompensatory stock purchase plan.
a *39. Compensation expense in an incentive stock option plan.
,16 - 2 Test Bank for Intermediate Accounting, Fourteenth Edition
MULTIPLE CHOICE—Dilutive Securities, Conceptual (cont.)
Answer No. Description
d *40. Stock appreciation rights plan.
b *41. Incentive stock option plan.
b *42. Share-based liability awards.
MULTIPLE CHOICE—Dilutive Securities, Computational
Answer No. Description
a 43. Conversion of convertible bonds.
b 44. Conversion of convertible bonds.
a 45. Exercise of stock purchase rights.
c 46. Conversion of convertible bonds.
b 47. Amortization of bond discount.
b 48. Unamortized bond discount related to converted bonds.
b 49. Conversion of convertible bonds.
d 50. Conversion of convertible preferred stock.
b 51. Bonds issued with detachable stock warrants.
c 52. Bonds issued with detachable stock warrants.
c 53. Bonds issued with detachable stock warrants.
c 54. Bonds issued with detachable stock warrants.
c 55. Recording paid-in capital from stock warrants.
b 56. Bonds issued with detachable stock warrants.
b 57. Exercise of stock purchase rights.
b 58. Bonds issued with detachable stock warrants.
c 59. Bonds issued with detachable stock warrants.
b 60. Recording paid-in capital from stock warrants.
b 61. Determine compensation expense in a stock option plan.
c 62. Determine compensation expense in a stock option plan.
c 63. Impact of stock options on net income.
b 64. Determine compensation expense in a stock option plan.
b 65. Determine compensation expense in a stock option plan.
d 66. Determine compensation expense in a stock option plan.
d 67. Determine paid-in capital amount in a stock option plan.
c 68. Determine compensation expense in a stock option plan.
c 69. Net income effect in a stock option plan.
c 70. Determine compensation expense in a stock option plan.
c 71. Impact of stock options on stockholders’ equity.
b 72. Determine compensation expense in a stock option plan.
a 73. Determine compensation expense in a stock option plan.
c 74. Issuance of treasury stock in a stock option plan.
b *75. Compensation expense recognized in first year in an SAR plan.
b *76. Compensation expense recognized in second year in an SAR plan.
a *77. Compensation expense recognized in third year in an SAR plan.
P
These questions also appear in the Problem-Solving Survival Guide.
S
These questions also appear in the Study Guide.
*This topic is dealt with in an Appendix to the chapter.
, Dilutive Securities and Earnings per Share 16 - 3
MULTIPLE CHOICE—Dilutive Securities, CPA Adapted
Answer No. Description
d 78. Cash proceeds from issuance of convertible bonds.
a 79. Bond issue with detachable stock warrants.
c 80. Compensation expense in a stock option plan.
c *81. Compensation expense recognized in an SAR plan.
MULTIPLE CHOICE—Earnings Per Share, Conceptual
Answer No. Description
c 82. Simple capital structure.
d 83. Computing EPS for a simple capital structure.
d 84. Computation of weighted-average shares outstanding.
c 85. Effect of treasury stock on EPS.
S
b 86. Reporting EPS by companies.
b P
87. Diluted EPS and conversion of bonds.
d 88. Diluted EPS.
b 89. Dilutive convertible securities.
a 90. Cumulative convertible preferred stock income adjustment.
d 91. Treasury stock method.
a 92. Treasury stock method.
b 93. Treasury stock method.
d 94. Antidilutive securities.
d *95. EPS calculation with two dilutive convertible securities.
MULTIPLE CHOICE—Earnings Per Share, Computational
Answer No. Description
c 96. Weighted average number of common shares outstanding.
c 97. Weighted average number of common shares outstanding.
b 98. Weighted average number of common shares outstanding.
b 99. Weighted average number of shares outstanding.
c 100. Determination of shares used in computing EPS.
a 101. Computation of earnings per share.
c 102. Basic EPS with convertible preferred stock.
c 103. EPS and a stock split.
d 104. Weighted average number of common shares outstanding.
b 105. Diluted EPS and the treasury stock method.
b 106. Diluted EPS with convertible bonds.
c 107. Diluted EPS and contingent issuances.
d 108. Basic EPS.
c 109. Diluted EPS with convertible bonds and preferred stock.
d 110. Number of shares in computing diluted EPS.
c 111. Diluted EPS.
c 112. EPS and contingent issuances.
b 113. Diluted EPS with convertible bonds.
c 114. Diluted EPS with convertible bonds.
b 115. Diluted EPS with convertible bonds.
b 116. Diluted EPS.
d 117. Basic EPS with convertible bonds and convertible preferred stock.
, 16 - 4 Test Bank for Intermediate Accounting, Fourteenth Edition
MULTIPLE CHOICE—Earnings Per Share, Computational (cont.)
Answer No. Description
c 118. Diluted EPS.
b 119. Denominator in computing basic EPS and DEPS with convertible bonds.
b 120. Shares outstanding for basic EPS and DEPS.
b 121. Basic EPS with convertible preferred stock.
c 122. Diluted EPS with convertible bonds.
a 123. Basic EPS and DEPS with convertible bonds issued during year.
c 124. Basic EPS with convertible preferred stock and convertible bonds.
b 125. DEPS with convertible preferred stock and convertible bonds.
c 126. DEPS and the treasury stock method.
d 127. DEPS using the treasury stock method.
MULTIPLE CHOICE—Earnings Per Share, CPA Adapted
Answer No. Description
b 128. Determine earnings per common share.
b 129. Determine earnings per common share.
d 130. Determine diluted EPS.
b 131. Number of shares to calculate diluted EPS.
b 132. DEPS with convertible securities.
d 133. Effect of dividends on nonconvertible preferred stock.
a 134. "If converted" method.
EXERCISES
Item Description
E16-135 Convertible bonds.
E16-136 Convertible bonds (essay).
E16-137 Convertible debt and debt with warrants (essay).
E16-138 Stock options.
E16-139 Weighted average shares outstanding.
E16-140 Earnings per share (essay).
E16-141 Earnings per share.
E16-142 Diluted earnings per share.
*E16-143 Stock appreciation rights.
PROBLEMS
Item Description
P16-144 Convertible bonds and stock warrants.
P16-145 Earnings per share.
P16-146 Basic and diluted earnings per share.
P16-147 Basic and diluted earnings per share.
P16-148 Basic and diluted earnings per share.
DILUTIVE SECURITIES AND EARNINGS PER SHARE
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Dilutive Securities—Conceptual
Answer No. Description
T 1. Accounting for convertible bond issue.
F 2. Reporting gain/loss on convertible debt retirement.
T 3. Reporting additional payment to encourage conversion.
F 4. Exercise of convertible preferred stock.
F 5. Convertible preferred stock exercise.
T 6. Allocating proceeds between debt and detachable warrants.
F 7. Allocating proceeds from nondetachable warrants.
T 8. Intrinsic value of a stock option.
F 9. Compensation expense in fair value method.
T 10. Service period in stock option plans.
F 11. Accounting for nonexercise of stock options.
F 12. Accounting for stock option forfeiture.
T 13. Cumulative preferred stock and EPS.
F 14. Restating shares for stock dividends and stock splits.
T 15. Stock dividend and weighted-average shares outstanding.
F 16. Preferred dividends and income before extraordinary items.
T. 17. Reporting EPS in complex capital structure.
F. 18. Dilutive stock options.
T 19. Contingent issue shares.
F 20. Reporting EPS for income from continuing operations.
MULTIPLE CHOICE—Dilutive Securities, Conceptual
Answer No. Description
d 21. Nature of convertible bonds.
d 22. Recording conversion of bonds.
b 23. Classification of early extinguishment of convertible bonds.
c S
24. Reasons for issuing convertible debt.
S
a 25. Reporting gain/loss on conversion of bonds.
d S
26. Accounting for conversion of preferred stock.
b 27. Recording conversion of preferred stock.
d 28. Bonds issued with detachable stock warrants.
d 29. Debt equity features of debt issued with stock warrants.
d 30. Classification of stock warrants outstanding.
P
d 31. Bonds issued with detachable stock warrants.
c P
32. Distribution of stock rights.
S
b 33. Difference between convertible debt and stock warrants.
c S
34. Characteristics of noncompensatory stock option plan.
a 35. Measurement of compensation in stock option.
c 36. Recognition of compensation expense in a stock option plan.
a 37. Compensation expense in a stock option plan.
d 38. Characteristics of noncompensatory stock purchase plan.
a *39. Compensation expense in an incentive stock option plan.
,16 - 2 Test Bank for Intermediate Accounting, Fourteenth Edition
MULTIPLE CHOICE—Dilutive Securities, Conceptual (cont.)
Answer No. Description
d *40. Stock appreciation rights plan.
b *41. Incentive stock option plan.
b *42. Share-based liability awards.
MULTIPLE CHOICE—Dilutive Securities, Computational
Answer No. Description
a 43. Conversion of convertible bonds.
b 44. Conversion of convertible bonds.
a 45. Exercise of stock purchase rights.
c 46. Conversion of convertible bonds.
b 47. Amortization of bond discount.
b 48. Unamortized bond discount related to converted bonds.
b 49. Conversion of convertible bonds.
d 50. Conversion of convertible preferred stock.
b 51. Bonds issued with detachable stock warrants.
c 52. Bonds issued with detachable stock warrants.
c 53. Bonds issued with detachable stock warrants.
c 54. Bonds issued with detachable stock warrants.
c 55. Recording paid-in capital from stock warrants.
b 56. Bonds issued with detachable stock warrants.
b 57. Exercise of stock purchase rights.
b 58. Bonds issued with detachable stock warrants.
c 59. Bonds issued with detachable stock warrants.
b 60. Recording paid-in capital from stock warrants.
b 61. Determine compensation expense in a stock option plan.
c 62. Determine compensation expense in a stock option plan.
c 63. Impact of stock options on net income.
b 64. Determine compensation expense in a stock option plan.
b 65. Determine compensation expense in a stock option plan.
d 66. Determine compensation expense in a stock option plan.
d 67. Determine paid-in capital amount in a stock option plan.
c 68. Determine compensation expense in a stock option plan.
c 69. Net income effect in a stock option plan.
c 70. Determine compensation expense in a stock option plan.
c 71. Impact of stock options on stockholders’ equity.
b 72. Determine compensation expense in a stock option plan.
a 73. Determine compensation expense in a stock option plan.
c 74. Issuance of treasury stock in a stock option plan.
b *75. Compensation expense recognized in first year in an SAR plan.
b *76. Compensation expense recognized in second year in an SAR plan.
a *77. Compensation expense recognized in third year in an SAR plan.
P
These questions also appear in the Problem-Solving Survival Guide.
S
These questions also appear in the Study Guide.
*This topic is dealt with in an Appendix to the chapter.
, Dilutive Securities and Earnings per Share 16 - 3
MULTIPLE CHOICE—Dilutive Securities, CPA Adapted
Answer No. Description
d 78. Cash proceeds from issuance of convertible bonds.
a 79. Bond issue with detachable stock warrants.
c 80. Compensation expense in a stock option plan.
c *81. Compensation expense recognized in an SAR plan.
MULTIPLE CHOICE—Earnings Per Share, Conceptual
Answer No. Description
c 82. Simple capital structure.
d 83. Computing EPS for a simple capital structure.
d 84. Computation of weighted-average shares outstanding.
c 85. Effect of treasury stock on EPS.
S
b 86. Reporting EPS by companies.
b P
87. Diluted EPS and conversion of bonds.
d 88. Diluted EPS.
b 89. Dilutive convertible securities.
a 90. Cumulative convertible preferred stock income adjustment.
d 91. Treasury stock method.
a 92. Treasury stock method.
b 93. Treasury stock method.
d 94. Antidilutive securities.
d *95. EPS calculation with two dilutive convertible securities.
MULTIPLE CHOICE—Earnings Per Share, Computational
Answer No. Description
c 96. Weighted average number of common shares outstanding.
c 97. Weighted average number of common shares outstanding.
b 98. Weighted average number of common shares outstanding.
b 99. Weighted average number of shares outstanding.
c 100. Determination of shares used in computing EPS.
a 101. Computation of earnings per share.
c 102. Basic EPS with convertible preferred stock.
c 103. EPS and a stock split.
d 104. Weighted average number of common shares outstanding.
b 105. Diluted EPS and the treasury stock method.
b 106. Diluted EPS with convertible bonds.
c 107. Diluted EPS and contingent issuances.
d 108. Basic EPS.
c 109. Diluted EPS with convertible bonds and preferred stock.
d 110. Number of shares in computing diluted EPS.
c 111. Diluted EPS.
c 112. EPS and contingent issuances.
b 113. Diluted EPS with convertible bonds.
c 114. Diluted EPS with convertible bonds.
b 115. Diluted EPS with convertible bonds.
b 116. Diluted EPS.
d 117. Basic EPS with convertible bonds and convertible preferred stock.
, 16 - 4 Test Bank for Intermediate Accounting, Fourteenth Edition
MULTIPLE CHOICE—Earnings Per Share, Computational (cont.)
Answer No. Description
c 118. Diluted EPS.
b 119. Denominator in computing basic EPS and DEPS with convertible bonds.
b 120. Shares outstanding for basic EPS and DEPS.
b 121. Basic EPS with convertible preferred stock.
c 122. Diluted EPS with convertible bonds.
a 123. Basic EPS and DEPS with convertible bonds issued during year.
c 124. Basic EPS with convertible preferred stock and convertible bonds.
b 125. DEPS with convertible preferred stock and convertible bonds.
c 126. DEPS and the treasury stock method.
d 127. DEPS using the treasury stock method.
MULTIPLE CHOICE—Earnings Per Share, CPA Adapted
Answer No. Description
b 128. Determine earnings per common share.
b 129. Determine earnings per common share.
d 130. Determine diluted EPS.
b 131. Number of shares to calculate diluted EPS.
b 132. DEPS with convertible securities.
d 133. Effect of dividends on nonconvertible preferred stock.
a 134. "If converted" method.
EXERCISES
Item Description
E16-135 Convertible bonds.
E16-136 Convertible bonds (essay).
E16-137 Convertible debt and debt with warrants (essay).
E16-138 Stock options.
E16-139 Weighted average shares outstanding.
E16-140 Earnings per share (essay).
E16-141 Earnings per share.
E16-142 Diluted earnings per share.
*E16-143 Stock appreciation rights.
PROBLEMS
Item Description
P16-144 Convertible bonds and stock warrants.
P16-145 Earnings per share.
P16-146 Basic and diluted earnings per share.
P16-147 Basic and diluted earnings per share.
P16-148 Basic and diluted earnings per share.
