Exam 15: Financial Reporting for Owners Equity

Prince Corp.has the following balance sheet information at December 31,2014. The convertible bonds were issued at par on April 1,2014 and are convertible into Prince's common stock at a ratio of 25 shares of stock to 1 bond.Prince did not have any treasury stock at December 31,2013 and purchased the 9,000 shares evenly throughout 2014.The average price of the common stock for the year was $40,and the year end price was $45. Prince Corp.also has 60,000 outstanding and exercisable qualified employee stock options.Employees obtain one share of stock for each option exercised.The exercise price for each option is $21 per share. Prince's net income for the year ended 2014 was $292,500.Its tax rate for the year was 35%. Required: 1.Compute basic EPS for the year ended December 31,2014.Show all computations. 2.Compute diluted EPS for the year ended December 31,2014.Show all computations.

Opposition to the FASB review of APB No.25 on stock options arose because stock options do not involve a cash outflow,and to treat them as an expense violates materiality.

Under current GAAP a stock dividend declaration and distribution will not reduce either total assets or total owners' equity.

Which of the following is not a reason why a company would purchase its own stock?

Convertible bonds that were outstanding during the entire year will not have an impact on the weighted average number of common shares outstanding used in the calculation of basic earnings per share.

Which one of the following is the correct entry to record the purchase of treasury stock?

Treasury stock is reported within the balance sheet as

Two companies,Company A and Company B,issue convertible bonds at par.If Company A uses IFRS and Company B follow U.S.GAAP,the amount Company A records for the debt will be greater than the amount Company B records for the debt.

A reason prompting a firm to purchase treasury stock is that management believes the stock is undervalued in the marketplace and therefore represents a good investment opportunity.

Issuing preferred stock is advantageous to financially weak companies because of the flexibility associated with the timing of the dividend payments.

A stock's par value does not necessarily have any relationship with a stock's market value.

A company's retained earnings on December 31, 2014 was $2,190,000 and its shareholders equity was $8,760,000. During 2015 the company reported the following: net income $225,000; a sale of treasury stock costing $75,000 for $79,750; a treasury stock purchase costing $125,700; a cash dividend declaration of $73,200; a 10,000 share "small" common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share. -What is the owners' equity balance on December 31,2015?

Ace Industries has the following shareholders' equity accounts at December 31, 2015: Preferred stock, S100 par value, 10\% dividend, 50,000 shares issued and outstanding \ 5,000,000 Common stock, S6 par value, 1 million shares issued and outstanding 6,000,000 Paid-in capital in excess of par 119,000,000 Unrestricted retained earnings 7,500,000 Retained eamings restricted for plant expansion 2,500,000 -Assuming that the preferred stock is cumulative,and that there are no dividends in arrears,what is the maximum dividend that may be distributed to common shareholders at December 31,2015?

Two companies,Company A and Company B,issue convertible bonds at par.If Company A uses IFRS and Company B follow U.S.GAAP,the amount Company A records for interest expense will be greater than the amount Company B records for interest expense.

Call provisions on convertible bonds protect the

Convertible bonds are usually

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. -How much cash will Cheery pay for interest during 2015?

To record newly issued stock shares upon conversion of debt,managers most often choose the method known as the

Which of the following does not accurately describe the "ownership" perspective of the firm?

The Squash Company's shareholders' equity on January 1,2015 was $3,125,500.During 2015,Squash Company reported the following: • Net income of $575,325. • Declared cash dividends totaling $125,000;the dividends had not been paid as of December 31,2015. • Issued 10,000 shares of $5 par value common stock at $9 per share. • Purchased 5,000 shares of its common stock for $9.75 per share;the shares are being held as treasury shares. • Sold 1,500 shares of treasury stock for $9.25 per share. • Issued 2,000 shares of $5 par value common stock resulting from the declaration of a stock dividend during 2015;the market value of the common stock on the date of declaration was $10.25 per share. What was shareholders' equity as of December 31,2015?