Exam 15: Financial Reporting for Owners Equity

With the development of modern option pricing methods,the Accounting Principles Board would probably have reached the conclusion today that the conversion feature of convertible bonds

When a loan agreement restricts a company from distributing its entire balance of retained earnings as dividends to shareholders,restricted retained earnings must be reported separately from unrestricted retained earnings on the face of the balance sheet.

The "if-converted" method for computing earnings per share dilution understates diluted earnings per share when a company's share price is substantially below the conversion price of the debt.

Evert Company recently acquired 5,000 shares of its $2 par value common stock for $10 per share.Evert initially issued the stock for $7.50 per share. Required: 1.Assuming the shares were purchased as treasury shares,prepare the necessary journal entry to record the purchase of the 5,000 shares. 2.Continuing with the assumption that the shares were purchased as treasury shares,prepare the journal entry to record the sale of 2,500 shares of the treasury stock for $11.50 per share. 3.Continuing with the assumption that the shares were purchased as treasury shares,prepare the journal entry to record the subsequent sale of 2,000 shares of treasury stock for $9.75 per share. 4.Assuming the shares were purchased and retired,prepare the journal entry to record the retirement of the shares.

A convertible bond's net-of-tax interest expense is added back to net income when determining diluted earnings per share only if the bond is known to be dilutive.

As a result of the passage of the 1984 Revised Model Business Corporation Act,it may be fair to state that

A $1,500 loss will be reported in the income statement when a company sells treasury stock for $8,500 if the treasury stock was initially purchased for $10,000.

Mandatorily redeemable preferred stock is reported on the balance sheet as

Treasury stock is considered to be a deduction from shareholders' equity.

Which of the following statements is correct if treasury stock costing $25,000 was sold for $27,500?

The 1984 Revised Model Business Corporation Act redefined solvency as a situation where the fair value of

Current GAAP requires that share-based compensation be expensed at the grant date of the stock options award.

Many start-up high-growth companies use stock options as a means of attracting talented employees while attempting to conserve cash.

Dividends paid by a corporation represent a distribution of earnings to shareholders and are reported as an expense in the income statement.

The following information has been obtained from the Brewster Corporation: • 250,000 shares of common stock were outstanding on January 1,2015. • 30,000 shares of preferred stock were issued on March 1,2015. • 12,000 shares of common stock were purchased on April 1,2015. • 10,000 shares of common stock were issued on October 1,2015. What is the weighted average number of shares to be used in the calculation of basic earnings per share for 2015?

Which one of the following is the entry to record the original sale of the stock?

By examining the statement of shareholders' equity an investor can determine all of the following except

The following information has been obtained from the Mastic Corporation: • 550,000 shares of common stock were outstanding on January 1,2015. • Bonds convertible into 50,000 shares of common stock were issued on July 1,2015;the bonds have been determined to be dilutive. • 36,000 shares of common stock were issued on November 1,2015. • 24,000 shares of common stock were purchased on December 1,2015. What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2015?

Under IFRS,preference shares are reported as equity and dividends are treated as interest expense on the income statement.

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. -If each share of preferred stock is convertible into 2 shares of common stock,the diluted earnings per share for 2015 is