Intermediate Accounting

Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Chapter 16 Dilutive Securities and Earnings Per Share - all with Video Answers

Educators

Chapter Questions

01:14

Problem 1

What is meant by a dilutive security?

Adam Conner

Numerade Educator

00:43

Problem 2

Briefly explain why corporations issue convertible securities.

Amrita Bhasin

Numerade Educator

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Problem 3

Discuss the similarities and the differences between convertible debt and debt issued with stock warrants.

James Kiss

Numerade Educator

01:53

Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of $\$ 160$ per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp. recorded the $\$ 160,000$ premium as a reduction of paid-in capital.
Comment on Bridgewater's treatment of the $\$ 160,000$ "sweetener."

Saad Ali Khan

Numerade Educator

03:28

Problem 5

Explain how the conversion feature of convertible debt has a value (a) to the issuer and (b) to the purchaser.

Puneet Prajapati

Numerade Educator

12:40

Problem 6

What are the arguments for giving separate accounting recognition to the conversion feature of debentures?

Paul A.

California State Polytechnic University, Pomona

02:32

Problem 7

Four years after issue, debentures with a face value of $\$ 1,000,000$ and book value of $\$ 960,000$ are tendered for conversion into 80,000 shares of common stock immediately after an interest payment date. At that time the market price of the debentures is $104,$ and the common stock is selling at $\$ 14$ per share (par value $\$ 10$ ). The company records the conversion as follows.
Discuss the propriety of this accounting treatment.

Kaylee Mcclellan

Numerade Educator

04:10

Problem 8

On July $1,2010,$ Roberts Corporation issued $\$ 3,000,000$ of $9 \%$ bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for $\$ 30$ one share of $\$ 1$ par value common stock at any time during the next 10 years. The bonds were sold for $\$ 3,000,000$ The value of the warrants at the time of issuance was $\$ 100,000 .$ Prepare the journal entry to record this transaction.

Oluwadamilola Ameobi

Numerade Educator

00:31

Problem 9

What are stock rights? How does the issuing company account for them?

Amrita Bhasin

Numerade Educator

01:38

Problem 10

Briefly explain the accounting requirements for stock compensation plans under GAAP.

Ameer Said

Numerade Educator

05:58

Problem 11

Cordero Corporation has an employee stock-purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15 shares on each subsequent anniversary date. The purchase price is set at the market price on the date purchased and no commission is charged. Discuss whether this plan would be considered compensatory.

Md.Daniyal Arshad

Numerade Educator

04:10

Problem 12

What date or event does the profession believe should be used in determining the value of a stock option? What arguments support this position?

Narayan Hari

Numerade Educator

00:58

Problem 13

Over what period of time should compensation cost be allocated?

Prashant Bana

Numerade Educator

01:34

Problem 14

How is compensation expense computed using the fair value approach?

Ameer Said

Numerade Educator

01:21

Problem 15

What are the advantages of using restricted stock to compensate employees?

Riham Bassal

Numerade Educator

05:42

Problem 16

At December 31,2010 , Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on October 1 2010. Net income for 2010 was $\$ 2,000,000,$ and dividends declared on preferred stock were $\$ 400,000 .$ Compute Reid's earnings per common share. (Round to the nearest penny.)

Carson Merrill

Numerade Educator

04:21

Problem 17

What effect do stock dividends or stock splits have on the computation of the weighted-average number of shares outstanding?

Tommy Nguyen

Numerade Educator

08:49

Problem 18

Define the following terms.
(a) Basic earnings per share.
(b) Potentially dilutive security.
(c) Diluted earnings per share.
(d) Complex capital structure.
(e) Potential common stock.

Ronald Prasad

Numerade Educator

02:19

Problem 19

What are the computational guidelines for determining whether a convertible security is to be reported as part of diluted earnings per share?

Oluwadamilola Ameobi

Numerade Educator

03:10

Problem 20

Discuss why options and warrants may be considered potentially dilutive common shares for the computation of diluted earnings per share.

Tommy Nguyen

Numerade Educator

06:02

Problem 21

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

Shivani Sharma

Numerade Educator

06:02

Problem 22

Explain the treasury-stock method as it applies to options and warrants in computing dilutive earnings per share data.

Shivani Sharma

Numerade Educator

01:21

Problem 23

Earnings per share can affect market prices of common stock. Can market prices affect earnings per share? Explain.

Pragya Ahuja

Numerade Educator

01:23

Problem 24

What is meant by the term antidilution? Give an example.

Deboney Harris

Numerade Educator

01:55

Problem 25

What type of earnings per share presentation is required in a complex capital structure?

Jennifer Stoner

Numerade Educator

02:19

Problem 26

Where can authoritative iGAAP be found related to dilutive securities, stock-based compensation, and earnings per share?

Oluwadamilola Ameobi

Numerade Educator

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Problem 27

Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for dilutive securities, stock-based compensation, and earnings per share.

James Kiss

Numerade Educator

04:10

Problem 28

Norman Co., a fast-growing golf equipment company, uses U.S. GAAP. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of $\$ 400,000,$ and pay interest annually at a rate of $4 \%$. The estimated fair value of the equity portion of the bond issue is $\$ 35,000 .$ Greg Shark is curious as to the difference in accounting for these bonds if the company were to use iGAAP. (a) Prepare the entry to record issuance of the bonds at par under U.S. GAAP. (b) Repeat the requirement for part (a), assuming application of iGAAP to the bond issuance. (c) Which approach provides the better accounting? Explain.

Oluwadamilola Ameobi

Numerade Educator

03:25

Problem 29

Briefly discuss the convergence efforts that are under way by the IASB and FASB in the area of dilutive securities and earnings per share.

David Gagnon

Numerade Educator

02:48

Problem 30

How is antidilution determined when multiple securities are involved?

Tommy Nguyen

Numerade Educator

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