Chapter 16 - Dilutive Securities and EPS Flashcards
Why do companies issue convertible debt?
To obtain financing at a cheaper interest rate
IFRS requires that the issuer of convertible debt record the liability and equity components (together/separately).
Separately
Convertible bonds are usually converted into _____.
Common stock
When convertible debt is retired, a (gain/loss/either/neither) is recognized.
Either
When a bond issuer offers some form of additional consideration (a “sweetener”) to induce conversion, the sweetener is accounting for as a(n) ____.
Expense
The conversion of preferred stock into common requires that any excess of the par value of common shares issued over the carrying amount of the preferred being converted should be treated as __________.
A reduction of retained earnings
Are gains or losses recorded in the accounting for the conversation of preferred stock to common stock?
No
What is the numerator of the diluted EPS calculation when convertible preferred stock is included?
Net income
Do nondetachable warrants require an allocation of the proceeds between the bonds and the warrants?
No
When bonds are issued with detachable stock warrants, and the fair market value is known for both securities, the price is allocated between the two securities using the _____ method.
(incremental, proportional)
Proportional
The treasury stock method applies to which securities?
Stock options
Stock warrants
The conversion of preferred stock is recorded by the ____ method.
Book value
Detachable stock warrants outstanding should be classified as ____.
(Contingent liabilities, prepaid expenses, reductions of capital contributed in excess of par value, paid-in capital)
Paid-in capital
Are warrants issued to give existing stockholders a preemptive right to purchase stock?
Yes
Are warrants issued to provide compensation to executives?
Yes
