Dilutive Securities and EPS Flashcards
Acct 202 ch 15
Stock Warrants are…
Securities that give investors the option to purchase a company’s stock @ a specific price over a specific period
Warrants are typically included as a ________ to investors to purchase a bond issuance
Sweetener
Advantages of stock warrants
- Allows investors to share in the future growth of the company
- Can be sold in the market
- Lower interest rate
Upon exercise of the stock warrant, there is an exchange of…
Cash
When stock warrants are issued with bonds, the stock warrants can be…
Detachable or Nondetachable
If a stock warrant is detachable…
They can be sold separately from the bonds
If a stock warrant is nondetachable…
They can only be sold with the bond
Debt + Nondetachable Stock Warrants = ?
Synthetic Convertible Debt, as they share similar attributes w/ convertible bonds
Do nondetachable warrants require an allocation of the proceeds between the bonds and warrants?
No
The company should allocate the proceeds from the sale of debt w/ detachable stock warrants between…
the 2 securities (debt + detachable stock warrant)
The ability to trade detachable warrants separately from the debt allows companies to…
Better determine the fair value of the equity and debt components for the convertible security
The 2 methods to determine how much to allocate to each security are…
- Proportional
- Incremental
The ________ method is the preferred allocation method companies use
Proportional
The ______ method allocates the proceeds using the proportion of the 2 amounts based on their fair values
Proportional
The J/E to sell stock warrants
Dr Cash
Cr Paid in Capital - Stock Warrants
The J/Es to record the sale of the bonds and warrants can he shown seperately to…
Emphasize that the purchaser is buying a bond + a potential future claim on common stock in the form of a stock warrant
J/E to exercise all warrants (convert to C/S)
Dr Cash
Dr Paid in Capital - Stock Warrants
Cr Common Stock
Cr Paid in Capital in Excess - Common Stock
J/E on the date the warrant expires
Dr Paid in Capital - Stock Warrants
Cr Paid in Capital - Expired Stock warrants
Stock-based compensation plans are…
long term compensation plans meant to develop company loyalty by giving them equity interest, or a piece of the pie
Stock options are a form of stock-based compensation that allows…
Employees the option to purchase common stock @ a given price over an extended period of time
There is a _______________ over which the employee must work before they can use their stock options
Service, or vesting period
The date that the company grants a stock option to an employee is called the…
Grant date
The option exercise price is often…
equal to or slightly higher than the market price of the stock on the grant date
The compensation expense amount is usually determined on the…
Grant date
