Midterm 1 Advanced

Question 1

Vaughn company sells a bond at 104, 4680 of its 9% 1000 face value bonds with detachable stock warrants. Each warrant has a market value of 2$ each. Record the journal entry

Answer 1

Debit Cash
Credit 
Paid in capital stock warrants
Premium on B/P
Bonds Payable

Question 2

How do you compute weighted average number of shares

Answer 2

Create a Table of:
# of Shares * Restatement 1 * Restatement 2 * (Months of Year Active)/12

Sum the result for each Answer

Question 3

During a stock split, how must you adjust weight average shares

Answer 3

Restate prior WAC calculations in terms of the stock split

Question 4

What is the formula for calculating normal EPS

Answer 4

(Net Income - Dividends)/(Weighted Average Common Shares)

Only include dividends if preferred stock is CUMULATIVE

Question 5

When do you include dividends in EPS

Answer 5

Only when they are cumulative

Question 6

What is dilutive earnings per share

Answer 6

Uses the What-If method to determine earnings per share if all warrants and options were exercised at the beginning of the year

Question 7

How do you calculate dilutive EPS

Answer 7

(Net Income + Interest Expense Net of Tax + Dividends in Arear Cumulative)/(Weighted Average Shares Outstanding + Extra Common Stock)

Question 8

What are the three dates when issuing dividends

Answer 8

Date of declaration
Date of record
Date of payment

Question 9

How do you record the issuing of bond warrants with comparable market value

Answer 9

Debit Cash and D/C bonds payable
Credit PIC Stock Warrants and Bonds Payable and Premium on BP

Calculate value of warrants by doing (Amount * FMV).

Question 10

The company sold to the public a $ 188,000, 10% bond issue at 103. The company also issued with each $ 100 bond one detachable stock purchase warrant. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $ 7. Record the journal entry

Answer 10

Debit Cash and D/C on Bonds Payable

Credit PIC Stock Warrants and Bonds Payable

Calculate amort by plugging value of warrants (Warrant Amount * FMV)

Question 11

How do you record the redemption of Bond warrants

Answer 11

Debit Cash and Paid-in Capital Stock Warrants

Credit Common Stock and Paid-in Excess of Par Common Stock

Question 12

During the current year, the company granted stock options for 10,100 shares of common stock to company executives. The company, using a fair value option-pricing model, determines that each option is worth $10. How do you record

Answer 12

Debit compensation expense

Credit paid-in capital stock options

Question 13

What happens when an employee fails to meet a stock option obligation previously recorded?

Answer 13

Debit Paid-in capital stock options

Credit Compensation expense

Question 14

What is the difference between preferred and common stock

Answer 14

Common stock has voting rights but is not guaranteed dividends

Preferred is guaranteed dividends and has priority bankruptcy but has no voting rights

Question 15

What journal entry is recorded on the date of declaration for dividends

Answer 15

Debit Retained Earnings / PIC in excess of par / etc.

Credit Dividends Payable

Question 16

What are the different types of dividends

Answer 16

Property Dividend
Cash Dividend
Stock Dividend
Liquidating Dividends

Question 17

What is a property dividend

Answer 17

A dividend paid in shares of another company or non cash assets like investments

Question 18

What is a liquidating dividend

Answer 18

When dividends are paid from Paid-in Capital in Excess of par instead of retained earnings

Debit PIC in excess of par
Credit Dividends payable

Question 19

What is a stock dividend

Answer 19

A dividend payment to stockholders of additional stock

Question 20

How do you record payment of dividends in arrear

Answer 20

Debit retained earnings

Credit cash / asset / treasury stock

Question 21

How do you record a small stock dividend

Answer 21

Debit Dividends payable

Credit Common Stock and PIC in excess of par

Question 22

How do you record a large stock dividend

Answer 22

Debit Dividend Payable

Credit Common Stock

Question 23

What dividend does not reduce stockholder equity

Answer 23

Stock Dividend

Question 24

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding does what

Answer 24

Decreases retained earnings but does not decrease total stock holder equity

Question 25

Bonita Industries owns 3750000 shares of stock in Sandhill Co.. On December 31, 2020, Bonita distributed these shares of stock as a dividend to its stockholders. This is an example of a

Answer 25

Property Dividend

Question 26

A feature common to both stock splits and stock dividends is

Answer 26

There is no effect on total stock holders dividend

Question 27

When is something anti dilutive

Answer 27

When it raises EPS

Question 28

A company has 10 stock warrants outstanding to purchase stock at $2 each with $1 par and a market value of $4, how does this effect dilutive eps

Answer 28

The company would buy back 5 shares from the cash gained and then need to issue another 5 shares. This changes weighted average shares outstanding by 5 rather than 10.

Question 29

How do you record the lowering of a notes payable negotiated with a lowered principle and interest rate.

Answer 29

For Interest payments debit interest expense and notes payable. Credit Cash

Question 30

Pearl Corporation issued 341 shares of $ 10 par value common stock and 145 shares of $ 50 par value preferred stock for a lump sum of $ 19,188. The common stock has a market price of $ 20 per share, and the preferred stock has a market price of $ 100 per share. Describe the thought process to solve this problem

Answer 30

Calculate the percentage of share worth by getting a percentage of each stocks worth in comparison to the lump sum of the market value. Then apply these percentages to the lump sum paid to determine excess paid of par.

Debit Cash, Credit PIC Common Stock, Common Stock, PIC Preferred, Preferred Stock