Exam 15: Financial Reporting for Owners Equity

If a company purchases treasury stock its earnings per share will increase.

Which of the following is not indicative of a complex capital structure?

Net income or loss generally arises from transactions with owners who provide net capital to the firm.

When a company does not have any convertible securities or options or warrants outstanding,the company has

The Heath Corporation reported net income for 2015 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December. -The weighted average number of common shares used to compute earnings per share for 2015 is

The following information has been provided to you by the Rae Corporation for the year ending December 31,2015: • Net income was $979,000. • Cash dividends totaling $120,000 were paid to the common shareholders. • 6% convertible bonds with a par value of $2,000,000 were issued on February 1,2015. • The corporation's marginal income tax rate is 40%. • 6% convertible preferred stock with a par value of $800,000 was outstanding during the entire year. Assuming that both the bonds and preferred stock are dilutive,what is the numerator that should be used in the calculation of basic earnings per share and diluted earnings per share?

A bond with a carrying value of $790,000 was converted into 100,000 shares of $5 per share par value common stock at a time when the market value per share was $9.00 per share.Which of the following statements does not accurately describe the financial accounting for the conversion?

A 3-for-1 stock split will reduce the per share par value and will

Financial statement users must recognize that interest expense may seriously

A company that has earnings in Year 2 equal to the earnings of Year 1 can improve its Year 2 reported earnings per share by

The Heath Corporation reported net income for 2015 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December. -The weighted average number of common shares used to compute earnings per share for 2015 is

Current GAAP requires that all convertible bonds be considered as if converted and included in the denominator of diluted earnings per share.

Diluted earnings per share will always be shown on the income statement for companies with complex capital structures.

The following information has been obtained from the Myers Corporation: • 300,000 shares of common stock were outstanding on January 1,2015. • 50,000 stock options were outstanding on January 1,2015;each option allows the holder to acquire one share of common stock for $20 per share.The average market price of the common stock during 2015 was $25 per share. • 48,000 shares of common stock were issued on February 1,2015. • 18,000 shares of common stock were purchased on August 1,2015. What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2015?

Over the vesting period for employee stock options,current GAAP requires that the entire compensation expense be recognized

Cheery Company follows IFRS for its financial reporting. On January 1, 2015 Cheery issued €250 million of 10-year convertible notes that pay interest at 5% annually. Investors pay €250 million for the notes even though the company's credit risk at the time implies a 10% interest rate for traditional debt of similar duration. When the cash flows associated with the debt are discounted at 10%, the resulting value is €175 million. -When Cheery records interest expense on December 31,2015 the entry will include

The exercise price for stock option plans on the grant date is

Penn Company had 10,000,000 shares of common stock outstanding on January 1,2015.Penn entered into the following stock transactions during 2015: • 2,000,000 shares of common stock were issued on April 1^st. • 600,000 shares of common stock were purchased on May 1^st and were being held as treasury stock. • 500,000 shares of preferred stock were issued on July 1^st. • 400,000 shares of treasury stock were reissued on October 1^st. • A 2-for-1 common stock split was declared on November 1^st. • Bonds convertible into 1,200,000 shares of common stock were issued on December 1^st;the bonds are considered to be dilutive. Determine the number of shares to be used in the calculation of basic EPS and diluted EPS.

Current GAAP requires the allocation of total share-based compensation cost to expense on a straight-line basis over the vesting period.

A $3,000 increase in total owners' equity occurs if treasury stock costing $11,500 is sold for $14,500.