Test 2

Question 1

The conversion of bonds is most commonly recorded by the

Answer 1

book value method

Question 2

When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair value of the warrants, the excess should be credited to

Answer 2

premium on bonds payable

Question 3

The date on which to measure the compensation element in a sock option granted to a corporate employee ordinarily is the date on which the employee

Answer 3

is granted the option

Question 4

Compensation expense resulting from a compensatory stock option plan is generally

Answer 4

allocated to the periods benefitted by the employee’s required service

Question 5

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

Answer 5

annual preferred dividend

Question 6

What effect will the acquisition of treasury stock have on stockholders’ equity and earnings per share, respectively

Answer 6

decrease and increase

Question 7

In the diluted earnings per share computation, the treasury stock method is sed for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would

Answer 7

be antidilutive

Question 8

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common sotck was $36. The total unamortized bond premium at the date of conversion was $280,000 on ALL the bonds. Fogel should record, as a result of conversion, a

Answer 8

credit of $217,600 to Paid-in Capital in Excess of Par.

Question 9

During 2018, Gordon Company issued at 104 five hundred, $1000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon’s common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon’s stockholders’ equity

Answer 9

$20,800