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MULTIPLE CHOICEDilutive Securities, Computational 50. In 2006, Berger, Inc.

, issued for $103 per share, 60,000 shares of


$100 par value convertible preferred stock. One share of preferred
43. Jenks Co.has $2,500,000 of 8% convertible bonds outstanding. Each
$1,000 bond is convertible into 30 shares of $30 par value common stock can be converted into three shares of Berger's $25 par value
stock. The bonds pay interest on January 31 and July 31. On July common stock at the option of the preferred stockholder. In August
31, 2007, the holders of $800,000 bonds exercised the conversion 2007, all of the preferred stock was converted into common stock.
privilege. On that date the market price of the bonds was 105 and
the market price of the common stock was $36. The total The market value of the common stock at the date of the conversion
unamortized bond premium at the date of conversion was $175,000. was $30 per share. What total amount should be credited to
Jenks should record, as a result of this conversion, a additional paid-in capital from common stock as a result of the
a. credit of $136,000 to Paid-in Capital in Excess of Par.
conversion of the preferred stock into common stock?
b. credit of $120,000 to Paid-in Capital in Excess of Par.
a. $1,020,000.
c. credit of $56,000 to Premium on Bonds Payable.
b. $780,000.
d. loss of $8,000.
c. $1,500,000.
44. On July 1, 2007, an interest payment date, $60,000 of Risen Co.
d. $1,680,000.
bonds were converted into 1,200 shares of Risen Co. common stock
each having a par value of $45 and a market value of $54. There is
51 On December 1, 2007, Howell Company issued at 103, two hundred
$2,400 unamortized discount on the bonds. Using the book value
of its 9%, $1,000 bonds. Attached to each bond was one detachable
method, Risen would record
stock warrant entitling the holder to purchase 10 shares of Howell's
a. no change in paid-in capital in excess of par.
common stock. On December 1, 2007, the market value of the
b. a $3,600 increase in paid-in capital in excess of par.
bonds, without the stock warrants, was 95, and the market value of
c. a $7,200 increase in paid-in capital in excess of par.
each stock purchase warrant was $50. The amount of the proceeds
d. a $4,800 increase in paid-in capital in excess of par.
from the issuance that should be accounted for as the initial carrying
value of the bonds payable would be
45. Quayle Corporation had two issues of securities outstanding: a. $193,640.
common stock and an 8% convertible bond issue in the face amount b. $195,700.
of $16,000,000. Interest payment dates of the bond issue are June c. $200,000.
d. $206,000.
30th and December 31st. The conversion clause in the bond
indenture entitles the bondholders to receive forty shares of $20 par 52. On March 1, 2007, Yang Corporation issued $800,000 of 8%
value common stock in exchange for each $1,000 bond. On June 30, nonconvertible bonds at 104, which are due on February 28, 2027. In
addition, each $1,000 bond was issued with 25 detachable stock
2007, the holders of $2,400,000 face value bonds exercised the
warrants, each of which entitled the bondholder to purchase for $50
conversion privilege. The market price of the bonds on that date was one share of Yang common stock, par value $25. The bonds without
$1,100 per bond and the market price of the common stock was $35. the warrants would normally sell at 95. On March 1, 2007, the fair
The total unamortized bond discount at the date of conversion was market value of Yangs common stock was $40 per share and the fair
market value of the warrants was $2.00. What amount should Yang
$1,000,000. In applying the book value method, what amount should
record on March 1, 2007 as paid-in capital from stock warrants?
Quayle credit to the account "paid-in capital in excess of par," as a a. $28,800
result of this conversion? b. $33,600
a. $330,000. c. $41,600
b. $160,000. d. $40,000
c. $1,440,000.
d. $720,000. 53. During 2007, Cartel Company issued at 104 three hundred, $1,000
bonds due in ten years. One detachable stock warrant entitling the
Use the following information for questions 46 through 48. holder to purchase 15 shares of Cartels common stock was
attached to each bond. At the date of issuance, the market value of
Gomez Corporation issued $3,000,000 of 9%, ten-year convertible bonds on the bonds, without the stock warrants, was quoted at 96. The market
July 1, 2007 at 96.1 plus accrued interest. The bonds were dated April 1, 2007 value of each detachable warrant was quoted at $40. What amount,
with interest payable April 1 and October 1. Bond discount is amortized if any, of the proceeds from the issuance should be accounted for as
semiannually on a straight-line basis. On April 1, 2008, $600,000 of these part of Cartels stockholders' equity?
bonds were converted into 500 shares of $20 par value common stock. a. $0
Accrued interest was paid in cash at the time of conversion. b. $12,000
c. $12,480
46. If "interest payable" were credited when the bonds were issued, what d. $11,856
should be the amount of the debit to "interest expense" on October
1, 2007? 54. On April 7, 2007, Meade Corporation sold a $2,000,000, twenty-year,
a. $64,500. 8 percent bond issue for $2,120,000. Each $1,000 bond has two
b. $67,500. detachable warrants, each of which permits the purchase of one
c. $70,500. share of the corporation's common stock for $30. The stock has a
d. $135,000. par value of $25 per share. Immediately after the sale of the bonds,
the corpo-ration's securities had the following market values:
47. What should be the amount of the unamortized bond discount on
8% bond without warrants
April 1, 2008 relating to the bonds converted?
Warrants
a. $23,400.
Common stock
b. $21,600.
c. $11,700. What accounts should Meade credit to record the sale of the bonds?
d. $22,200. a. Bonds Payable
Premium on Bonds Payable
48. What was the effective interest rate on the bonds when they were Paid-in CapitalStock Warrants
issued?
a. 9% b. Bonds Payable
b. Above 9% Premium on Bonds Payable
c. Below 9% Paid-in CapitalStock Warrants
d. Cannot determine from the information given.
c. Bonds Payable
Premium on Bonds Payable
49. Darby Corporation issued at a premium of $5,000 a $100,000 bond
Paid-in CapitalStock Warrants
issue convertible into 2,000 shares of common stock (par value $40).
At the time of the conversion, the unamortized premium is $2,000, d. Bonds Payable
the market value of the bonds is $110,000, and the stock is quoted Premiums on Bonds Payable
on the market at $60 per share. If the bonds are converted into
common, what is the amount of paid-in capital in excess of par to be Use the following information for questions 55 and 56.
recorded on the conversion of the bonds?
a. $25,000 On May 1, 2007, Logan Co. issued $300,000 of 7% bonds at 103, which are
b. $22,000 due on April 30, 2017. Twenty detachable stock warrants entitling the holder to
c. $32,000 purchase for $40 one share of Logans common stock, $15 par value, were
d. $40,000 attached to each $1,000 bond. The bonds without the warrants would sell at
96. On May 1, 2007, the fair value of Logans common stock was $35 per December 1 $34 per share
share and of the warrants was $2.
The service period is for three years beginning January 1, 2008. As a
55. On May 1, 2007, Logan should credit Paid-in Capital from Stock result of the option granted to Wright, using the fair value method,
Warrants for Downs should recognize compensation expense for 2008 on its
a. $11,520. books in the amount of
b. $12,000. a. $9,000.
c. $12,360. b. $7,500.
d. $21,000. c. $2,500.
d. $1,500.
56. On May 1, 2007, Logan should record the bonds with a
a. discount of $12,000. 61. On December 31, 2007, Filmore Company granted some of its
b. discount of $3,360. executives options to purchase 50,000 shares of the company's $10
c. discount of $3,000. par common stock at an option price of $50 per share. The options
d. premium of $9,000. become exercisable on January 1, 2008, and represent
compensation for executives' services over a three-year period
57.On July 4, 2007, Diaz Company issued for $4,200,000 a total of 40,000 beginning January 1, 2008. The Black-Scholes option pricing model
shares of $100 par value, 7% noncumulative preferred stock along with one determines total compensation expense to be $300,000. At
detachable warrant for each share issued. Each warrant contains a right to December 31, 2008, none of the executives had exercised their
purchase one share of Diaz $10 par value common stock for $15 per share. options. What is the impact on Filmore's net income for the year
The stock without the warrants would normally sell for $4,100,000. The market ended December 31, 2008 as a result of this transaction under the
price of the rights on July 1, 2007, was $2.50 per right. On October 31, 2007, fair value method?
when the market price of the common stock was $19 per share and the market a. $100,000 increase
value of the rights was $3.00 per right, 16,000 rights were exercised. As a b. $0
result of the exercise of the 16,000 rights and the issuance of the related c. $100,000 decrease
common stock, what journal entry would Diaz make? d. $300,000 decrease
a. Cash 240,000
Common Stock 62. Yunger Corp. on January 1, 2004, granted stock options for 40,000
160,000 shares of its $10 par value common stock to its key employees. The
Paid-in Capital in Excess of Par market price of the common stock on that date was $23 per share and
80,000 the option price was $20. The Black-Scholes option pricing model
determines total compensation expense to be $240,000. The options
b. Cash 240,000 are exercisable beginning January 1, 2007, provided those key
Paid-in CapitalStock Warrants 40,000 employees are still in Yungers employ at the time the options are
Common Stock exercised. The options expire on January 1, 2008.
160,000
Paid-in Capital in Excess of Par On January 1, 2007, when the market price of the stock was $29 per
120,000 share, all 40,000 options were exercised. The amount of
compensation expense Yunger should record for 2006 under the fair
c. Cash 240,000 value method is
Paid-in CapitalStock Warrants 100,000 a. $0.
Common Stock b. $40,000.
160,000 c. $80,000.
Paid-in Capital in Excess of Par d. $120,000.
180,000
63. On December 31, 2007, Jansen Company granted some of its
d. Cash 240,000 executives options to purchase 45,000 shares of the company's $50
Paid-in CapitalStock Warrants 60,000 par common stock at an option price of $60 per share. The Black-
Common Stock Scholes option pricing model determines total compensation expense
160,000 to be $900,000. The options become exercisable on January 1, 2008,
Paid-in Capital in Excess of Par and represent compensation for executives' past and future services
140,000 over a three-year period beginning January 1, 2008. What is the
impact on Jansen's total stockholders' equity for the year ended
58. Sloane Corporation offered detachable 5-year warrants to buy one December 31, 2007, as a result of this transaction under the fair value
share of common stock (par value $5) at $20 (at a time when the method?
stock was selling for $32). The price paid for 2,000, $1,000 bonds a. $900,000 decrease
with the warrants attached was $205,000. The market price of the b. $300,000 decrease
Sloane bonds without the warrants was $180,000, and the market c. $0
price of the warrants without the bonds was $20,000. What amount d. $300,000 increase
should be allocated to the warrants?
a. $20,000 64. On June 30, 2004, Sealey Corporation granted compensatory stock
b. $20,500 options for 30,000 shares of its $20 par value common stock to
c. $24,000 certain of its key employees. The market price of the common stock
d. $25,000 on that date was $36 per share and the option price was $30. The
Black-Scholes option pricing model determines total compensation
59. On January 1, 2008, Porter Company granted stock options to expense to be $360,000. The options are exercisable beginning
officers and key employees for the purchase of 10,000 shares of the January 1, 2007, provided those key employees are still in Sealeys
company's $1 par common stock at $20 per share as additional employ at the time the options are exercised. The options expire on
compensation for services to be rendered over the next three years. June 30, 2008.
The options are exercisable during a five-year period beginning
January 1, 2011 by grantees still employed by Porter. The Black- On January 4, 2007, when the market price of the stock was $42 per
Scholes option pricing model determines total compensation share, all 30,000 options were exercised. What should be the
expense to be $90,000. The market price of common stock was $26 amount of compensation expense recorded by Sealey Corporation
per share at the date of grant. The journal entry to record the for the calendar year 2006 using the fair value method?
compensation expense related to these options for 2008 would a. $0.
include a credit to the Paid-in CapitalStock Options account for b. $144,000.
a. $0. c. $180,000.
b. $18,000. d. $360,000.
c. $20,000.
d. $30,000. 65. In order to retain certain key executives, Tanner Corporation granted
them incentive stock options on December 31, 2006. 50,000 options
60.On January 1, 2008, Downs Company granted Tim Wright, an employee, an were granted at an option price of $35 per share. Market prices of
option to buy 1,000 shares of Downs Co. stock for $25 per share, the option the stock were as follows:
exercisable for 5 years from date of grant. Using a fair value option pricing
model, total compensation expense is determined to be $7,500. Wright December 31, 2007 $46 pe
exercised his option on September 1, 2008, and sold his 1,000 shares on December 31, 2008 51 pe
December 1, 2008. Quoted market prices of Downs Co. stock during 2008 The options were granted as compensation for executives' services
were to be rendered over a two-year period beginning January 1, 2007.
January 1 $25 per share The Black-Scholes option pricing model determines total
September 1 $30 per share
compensation expense to be $500,000. What amount of $20 per share. The Black-Scholes option pricing model determines
compensation expense should Tanner recognize as a result of this total compensation expense to be $140,000. The option became
plan for the year ended December 31, 2007 under the fair value exercisable on December 31, 2008, after the employee completed
method? two years of service. The market prices of Doane's stock were as
a. $250,000. follows:
b. $500,000.
c. $550,000. January 1, 2007 $30
d. $1,750,000. December 31, 2008 50
For 2008, Doane should recognize compensation expense under the
66. Kiner, Inc. had 40,000 shares of treasury stock ($10 par value) at fair value method of
December 31, 2006, which it acquired at $11 per share. On June 4, a. $90,000.
2007, Kiner issued 20,000 treasury shares to employees who b. $30,000.
exercised options under Kiner's employee stock option plan. The c. $70,000.
market value per share was $13 at December 31, 2006, $15 at June d. $0.
4, 2007, and $18 at December 31, 2007. The stock options had been
granted for $12 per share. The cost method is used. What is the *73. On January 2, 2007, for past services, Titus Corp. granted Ken Pine,
balance of the treasury stock on Kiner's balance sheet at December its president, 16,000 stock appreciation rights that are exercisable
31, 2007? immediately and expire on January 2, 2008. On exercise, Pine is
a. $140,000. entitled to receive cash for the excess of the market price of the
b. $180,000. stock on the exercise date over the market price on the grant date.
c. $220,000. Pine did not exercise any of the rights during 2007. The market price
d. $240,000. of Titus's stock was $30 on January 2, 2007, and $45 on December
31, 2007. As a result of the stock appreciation rights, Titus should
Use the following information for questions 67 through 69. recognize compensation expense for 2007 of
a. $0.
On January 1, 2006, Merken, Inc. established a stock appreciation rights plan b. $80,000.
for its executives. It entitled them to receive cash at any time during the next c. $240,000.
four years for the difference between the market price of its common stock and d. $480,000.
a pre-established price of $20 on 60,000 SARs. Current market prices of the
stock are as follows:

January 1, 2006 $35 per share


December 31, 2006 38 per share MULTIPLE CHOICEEarnings Per ShareConceptual
December 31, 2007 30 per share
December 31, 2008 33 per 74.
share With respect to the computation of earnings per share, which of the
following would be most indicative of a simple capital structure?
Compensation expense relating to the plan is to be recorded over a four-year a. Common stock, preferred stock, and convertible securities
period beginning January 1, 2006. outstanding in lots of even thousands
b. Earnings derived from one primary line of business
*67. What amount of compensation expense should Merken recognize for c. Ownership interest consisting solely of common stock
the year ended December 31, 2006? d. None of these
a. $180,000
b. $270,000 75. In computing earnings per share for a simple capital structure, if the
c. $225,000 preferred stock is cumulative, the amount that should be deducted as
d. $1,080,000 an adjustment to the numerator (earnings) is the
a. preferred dividends in arrears.
*68. What amount of compensation expense should Merken recognize for b. preferred dividends in arrears times (one minus the income tax
the year ended December 31, 2007? rate).
a. $0 c. annual preferred dividend times (one minus the income tax
b. $30,000 rate).
c. $300,000 d. none of these.
d. $150,000
76. In computations of weighted average of shares outstanding, when a
*69. On December 31, 2008, 16,000 SARs are exercised by executives. stock dividend or stock split occurs, the additional shares are
What amount of compensation expense should Merken recognize for a. weighted by the number of days outstanding.
the year ended December 31, 2008? b. weighted by the number of months outstanding.
a. $285,000 c. considered outstanding at the beginning of the year.
b. $195,000 d. considered outstanding at the beginning of the earliest year
c. $585,000 reported.
d. $78,000
77. What effect will the acquisition of treasury stock have on
stockholders' equity and earnings per share, respectively?
MULTIPLE CHOICEDilutive Securities, CPA Adapted a. Decrease and no effect
b. Increase and no effect
70. On January 2, 2006, Carr Co. issued 10-year convertible bonds at c. Decrease and increase
105. During 2008, these bonds were converted into common stock d. Increase and decrease
having an aggregate par value equal to the total face amount of the
bonds. At conversion, the market price of Carrs common stock was S
78. Due to the importance of earnings per share information, it is
50 percent above its par value. On January 2, 2006, cash proceeds required to be reported by all
from the issuance of the convertible bonds should be reported as Public Companies Nonpublic Companies
a. paid-in capital for the entire proceeds. a. Yes Yes
b. paid-in capital for the portion of the proceeds attributable to the b. Yes No
conversion feature and as a liability for the balance. c. No No
c. a liability for the face amount of the bonds and paid-in capital d. No Yes
for the premium over the face amount.
d. a liability for the entire proceeds. P
79.A convertible bond issue should be included in the diluted earnings per
share computation as if the bonds had been converted into common stock, if
71. Kane Co. issued bonds with detachable common stock warrants. the effect of its inclusion is
Only the warrants had a known market value. The sum of the fair
value of the warrants and the face amount of the bonds exceeds the Dilutive Antidilutive
cash proceeds. This excess is reported as a. Yes Yes
a. Discount on Bonds Payable. b. Yes No
b. Premium on Bonds Payable. c. No Yes
c. Common Stock Subscribed. d. No No
d. Paid-in Capital in Excess of ParStock Warrants.
80. When computing diluted earnings per share, convertible bonds are
72. On January 1, 2007, Doane Corp. granted an employee an option to a. ignored.
purchase 6,000 shares of Doane's $5 par value common stock at b. assumed converted whether they are dilutive or antidilutive.
c. assumed converted only if they are antidilutive. December 31, 2007. Earnings per share of common stock for 2007
d. assumed converted only if they are dilutive. would be
a. $1.75.
81. Dilutive convertible securities must be used in the computation of b. $.83.
a. basic earnings per share only. c. $1.00.
b. diluted earnings per share only. d. $1.17.
c. diluted and basic earnings per share.
d. none of these. 89. At December 31, 2007, Norbett Company had 500,000 shares of
common stock issued and outstanding, 400,000 of which had been
82. In computing earnings per share, the equivalent number of shares of issued and outstanding throughout the year and 100,000 of which
were issued on October 1, 2007. Net income for the year ended
convertible preferred stock are added as an adjustment to the
December 31, 2007, was $1,020,000. What should be Norbett's
denominator (number of shares outstanding). If the preferred stock 2007 earnings per common share, rounded to the nearest penny?
is cumulative, which amount should then be added as an adjustment a. $2.02
to the numerator (net earnings)? b. $2.55
a. Annual preferred dividend c. $2.40
b. Annual preferred dividend times (one minus the income tax d. $2.27
rate)
c. Annual preferred dividend times the income tax rate 90. Loeb Co. had 600,000 shares of common stock outstanding on
d. Annual preferred dividend divided by the income tax rate January 1, issued 126,000 shares on May 1, purchased 63,000
shares of treasury stock on September 1, and issued 54,000 shares
on November 1. The weighted average shares outstanding for the
83. In the diluted earnings per share computation, the treasury stock year is
method is used for options and warrants to reflect assumed a. 651,000.
reacquisition of common stock at the average market price during b. 672,000.
c. 693,000.
the period. If the exercise price of the options or warrants exceeds
d. 714,000.
the average market price, the computation would
a. fairly present diluted earnings per share on a prospective basis. 91. On January 1, 2008, Dingler Corporation had 125,000 shares of its
b. fairly present the maximum potential dilution of diluted earnings $2 par value common stock outstanding. On March 1, Dingler sold
per share on a prospective basis. an additional 250,000 shares on the open market at $20 per share.
c. reflect the excess of the number of shares assumed issued Dingler issued a 20% stock dividend on May 1. On August 1, Dingler
over the number of shares assumed reacquired as the potential purchased 140,000 shares and immediately retired the stock. On
dilution of earnings per share. November 1, 200,000 shares were sold for $25 per share. What is
d. be antidilutive. the weighted-average number of shares outstanding for 2008?
a. 510,000
84. In applying the treasury stock method to determine the dilutive effect b. 375,000
of stock options and warrants, the proceeds assumed to be received c. 358,333
upon exercise of the options and warrants d. 258,333
a. are used to calculate the number of common shares
repurchased at the average market price, when computing 92. The following information is available for Alley Corporation:
diluted earnings per share.
b. are added, net of tax, to the numerator of the calculation for January 1, 2008 Shares outstanding
diluted earnings per share. April 1, 2008 Shares issued
c. are disregarded in the computation of earnings per share if the July 1, 2008 Treasury shares purchased
exercise price of the options and warrants is less than the October 1, 2008 Shares issued in a 100% stock dividend
ending market price of common stock.
d. none of these. The number of shares to be used in computing earnings per
common share for 2008 is
85. When applying the treasury stock method for diluted earnings per a. 2,825,500.
share, the market price of the common stock used for the repurchase b. 2,737,500.
is the c. 2,725,000.
a. price at the end of the year. d. 1,706,250.
b. average market price.
c. price at the beginning of the year. 93. At December 31, 2007 Polk Company had 300,000 shares of
d. none of these. common stock and 10,000 shares of 5%, $100 par value cumulative
preferred stock outstanding. No dividends were declared on either
86. Antidilutive securities the preferred or common stock in 2007 or 2008. On January 30,
a. should be included in the computation of diluted earnings per 2009, prior to the issuance of its financial statements for the year
share but not basic earnings per share. ended December 31, 2008, Polk declared a 100% stock dividend on
b. are those whose inclusion in earnings per share computations its common stock. Net income for 2008 was $950,000. In its 2008
would cause basic earnings per share to exceed diluted financial statements, Polk's 2008 earnings per common share should
earnings per share. be
c. include stock options and warrants whose exercise price is less a. $1.50.
than the average market price of common stock. b. $1.58.
d. should be ignored in all earnings per share calculations. c. $3.00.
d. $3.17.
*87. Assume there are two dilutive convertible securities. The one that
94.Caruso Company had 500,000 shares of common stock issued and
should be used first to recalculate earnings per share is the security
outstanding at December 31, 2007. On July 1, 2008 an additional 500,000
with the shares were issued for cash. Caruso also had stock options outstanding at the
a. greater earnings adjustment. beginning and end of 2008 which allow the holders to purchase 150,000
b. greater earnings per share adjustment. shares of common stock at $20 per share. The average market price of
c. smaller earnings adjustment. Caruso's common stock was $25 during 2008. What is the number of shares
d. smaller earnings per share adjustment. that should be used in computing diluted earnings per share for the year ended
December 31, 2008?
a. 1,030,000
b. 870,000
Solution to Multiple Choice question for which the answer is none of these. c. 787,500
d. 780,000
75. annual preferred dividend.
95. Hoffman Corporation had net income for the year of $480,000 and a
weighted average number of common shares outstanding during the
MULTIPLE CHOICEEarnings Per ShareComputational
period of 200,000 shares. The company has a convertible bond
issue outstanding. The bonds were issued four years ago at par
88. Jett Corp. had 600,000 shares of common stock outstanding on
($2,000,000), carry a 7% interest rate, and are convertible into
January 1, issued 900,000 shares on July 1, and had income
40,000 shares of common stock. The company has a 40% tax rate.
applicable to common stock of $1,050,000 for the year ending
Diluted earnings per share are
a. $1.65 102. Diluted earnings per share for 2007 is (rounded to the nearest
b. $2.23. penny)
c. $2.35. a. $2.14.
d. $2.58. b. $2.25.
c. $2.35.
96. Kern Corporation purchased Goltra Inc. and agreed to give d. $2.46.
stockholders of Goltra Inc. 50,000 additional shares in 2009 if Goltra 103. Werth, Incorporated, has 3,200,000 shares of common stock
Inc.s net income in 2008 is $400,000 or more; in 2007 Goltra Inc.s outstanding on December 31, 2006. An additional 800,000 shares of
net income is $410,000. Kern has net income for 2007 of $800,000 common stock were issued on April 1, 2007, and 400,000 more on
and has an average number of common shares outstanding for 2007 July 1, 2007. On October 1, 2007, Werth issued 20,000, $1,000 face
of 500,000 shares. What should Kern report as earnings per share value, 8% convertible bonds. Each bond is convertible into 20 shares
for 2007? of common stock. No bonds were converted into common stock in
2007. What is the number of shares to be used in computing basic
Basic Earnings Diluted Earnings earnings per share and diluted earnings per share, respectively?
Per Share Per Share a. 4,000,000 and 4,000,000
a. $1.60 $1.60 b. 4,000,000 and 4,100,000
b. $1.45 $1.60 c. 4,000,000 and 4,400,000
c. $1.60 $1.45 d. 4,400,000 and 5,200,000
d. $1.45 $1.45
104. Lemke Co. has 4,000,000 shares of common stock outstanding on
97. On January 2, 2007, Ramos Co. issued at par $10,000 of 6% bonds December 31, 2006. An additional 200,000 shares are issued on
convertible in total into 1,000 shares of Ramos's common stock. No April 1, 2007, and 480,000 more on September 1. On October 1,
bonds were converted during 2007. Throughout 2007, Ramos had Lemke issued $6,000,000 of 9% convertible bonds. Each $1,000
1,000 shares of common stock outstanding. Ramos's 2007 net bond is convertible into 40 shares of common stock. No bonds have
income was $3,000, and its income tax rate is 30%. No potentially been converted. The number of shares to be used in computing
dilutive securities other than the convertible bonds were outstanding basic earnings per share and diluted earnings per share on
during 2007. Ramos's diluted earnings per share for 2007 would be December 31, 2007 is
(rounded to the nearest penny) a. 4,310,000 and 4,310,000.
a. $1.50. b. 4,310,000 and 4,370,000.
b. $1.71. c. 4,310,000 and 4,550,000.
c. $1.80. d. 5,080,000 and 5,320,000.
d. $3.42.
105. At December 31, 2006, Quirk Company had 2,000,000 shares of
98.At December 31, 2006, Pratt Company had 500,000 shares of common common stock outstanding. On January 1, 2007, Quirk issued
stock outstanding. On October 1, 2007, an additional 100,000 shares of 500,000 shares of preferred stock which were convertible into
common stock were issued. In addition, Pratt had $10,000,000 of 6% 1,000,000 shares of common stock. During 2007, Quirk declared and
convertible bonds outstanding at December 31, 2006, which are convertible paid $1,500,000 cash dividends on the common stock and $500,000
into 225,000 shares of common stock. No bonds were converted into common cash dividends on the preferred stock. Net income for the year
stock in 2007. The net income for the year ended December 31, 2007, was ended December 31, 2007, was $5,000,000. Assuming an income
$3,000,000. Assuming the income tax rate was 30%, the diluted earnings per tax rate of 30%, what should be diluted earnings per share for the
share for the year ended December 31, 2007, should be (rounded to the year ended December 31, 2007? (Round to the nearest penny.)
nearest penny) a. $1.50
a. $6.52. b. $1.67
b. $4.80. c. $2.50
c. $4.56. d. $2.08
d. $4.00.

99. On January 2, 2007, Dino Co. issued at par $300,000 of 9% 106. Colaw Company had 300,000 shares of common stock issued and
convertible bonds. Each $1,000 bond is convertible into 30 shares. outstanding at December 31, 2006. During 2007, no additional
No bonds were converted during 2007. Dino had 50,000 shares of
common stock was issued. On January 1, 2007, Colaw issued
common stock outstanding during 2007. Dino's 2007 net income was
$160,000 and the income tax rate was 30%. Dino's diluted earnings 400,000 shares of nonconvertible preferred stock. During 2007,
per share for 2007 would be (rounded to the nearest penny) Colaw declared and paid $180,000 cash dividends on the common
a. $2.71. stock and $150,000 on the nonconvertible preferred stock. Net
b. $3.03.
income for the year ended December 31, 2007, was $960,000.
c. $3.20.
d. $3.58. What should be Colaw's 2007 earnings per common share, rounded
to the nearest penny?
100. At December 31, 2006, Kegan Co. had 1,200,000 shares of common a. $1.16
stock outstanding. In addition, Kegan had 450,000 shares of b. $2.10
preferred stock which were convertible into 750,000 shares of c. $2.70
common stock. During 2007, Kegan paid $600,000 cash dividends d. $3.20
on the common stock and $400,000 cash dividends on the preferred
stock. Net income for 2007 was $3,400,000 and the income tax rate 107.At December 31, 2006, Agler Company had 1,200,000 shares of common
was 40%. The diluted earnings per share for 2007 is (rounded to the
nearest penny) stock outstanding. On September 1, 2007, an additional 400,000 shares of
a. $1.24. common stock were issued. In addition, Agler had $12,000,000 of 6%
b. $1.74. convertible bonds outstanding at December 31, 2006, which are convertible
c. $2.51.
into 800,000 shares of common stock. No bonds were converted into common
d. $2.84.
stock in 2007. The net income for the year ended December 31, 2007, was
Use the following information for questions 101 and 102. $4,500,000. Assuming the income tax rate was 30%, what should be the
Gilley Co. had 200,000 shares of common stock, 20,000 shares of convertible diluted earnings per share for the year ended December 31, 2007, rounded to
preferred stock, and $1,000,000 of 10% convertible bonds outstanding during the nearest penny?
a. $2.11
2007. The preferred stock is convertible into 40,000 shares of common stock.
b. $3.38
During 2007, Gilley paid dividends of $.90 per share on the common stock and c. $2.35
$3.00 per share on the preferred stock. Each $1,000 bond is convertible into d. $2.45
45 shares of common stock. The net income for 2007 was $600,000 and the
income tax rate was 30%. 108. Foley Company has 1,800,000 shares of common stock outstanding
on December 31, 2006. An additional 150,000 shares of common
101. Basic earnings per share for 2007 is (rounded to the nearest penny) stock were issued on July 1, 2007, and 300,000 more on October 1,
a. $2.21.
b. $2.42. 2007. On April 1, 2007, Foley issued 6,000, $1,000 face value, 8%
c. $2.51. convertible bonds. Each bond is convertible into 40 shares of
d. $2.70. common stock. No bonds were converted into common stock in
2007. What is the number of shares to be used in computing basic
earnings per share and diluted earnings per share, respectively, for during 2007. On January 1, 2007, Peine issued 200,000 shares of
nonconvertible preferred stock. During 2007, Peine declared and
the year ended December 31, 2007?
paid $100,000 cash dividends on the common stock and $80,000 on
a. 1,950,000 and 2,130,000
the preferred stock. Net income for the year ended December 31,
b. 1,950,000 and 1,950,000
2007 was $620,000. What should be Peine's 2007 earnings per
c. 1,950,000 and 2,190,000
common share?
d. 2,250,000 and 2,430,000
a. $2.07
b. $1.80
c. $1.73
d. $1.47

114. At December 31, 2007 and 2006, Glass Corp. had 180,000 shares of
common stock and 10,000 shares of 5%, $100 par value cumulative
preferred stock outstanding. No dividends were declared on either
the preferred or common stock in 2007 or 2006. Net income for 2007
was $400,000. For 2007, earnings per common share amounted to
Use the following information for questions 109 and 110.
a. $2.22.
Information concerning the capital structure of Simot Corporation is as follows: b. $1.94.
c. $1.67.
d. $1.11.
115. Royce Co. had 2,400,000 shares of common stock outstanding on
January 1 and December 31, 2007. In connection with the
December 31, acquisition of a subsidiary company in June 2006, Royce is required
2006 2007 to issue 100,000 additional shares of its common stock on July 1,
Common stock 150,000 shares 150,000 shares 2008, to the former owners of the subsidiary. Royce paid $200,000 in
Convertible preferred stock 15,000 shares 15,000 shares preferred stock dividends in 2007, and reported net income of
9% convertible bonds $2,400,000 $2,400,000 $3,400,000 for the year. Royce's diluted earnings per share for 2007
During 2007, Simot paid dividends of $1.20 per share on its common stock and should be
$3.00 per share on its preferred stock. The preferred stock is convertible into a. $1.42.
30,000 shares of common stock. The 9% convertible bonds are convertible b. $1.36.
into 75,000 shares of common stock. The net income for the year ended c. $1.33.
December 31, 2007, was $600,000. Assume that the income tax rate was 30%. d. $1.28.

109. What should be the basic earnings per share for the year ended 116. Eller, Inc., had 560,000 shares of common stock issued and
December 31, 2007, rounded to the nearest penny? outstanding at December 31, 2006. On July 1, 2007, an additional
a. $2.66 40,000 shares of common stock were issued for cash. Eller also had
b. $2.92 unexercised stock options to purchase 32,000 shares of common
c. $3.70 stock at $15 per share outstanding at the beginning and end of 2007.
d. $4.00 The average market price of Eller's common stock was $20 during
2007. What is the number of shares that should be used in
110. What should be the diluted earnings per share for the year ended computing diluted earnings per share for the year ended December
December 31, 2007, rounded to the nearest penny? 31, 2007?
a. $3.20 a. 580,000
b. $2.95 b. 588,000
c. $2.83 c. 608,000
d. $2.35 d. 612,000
111. Warrants exercisable at $20 each to obtain 30,000 shares of
common stock were outstanding during a period when the average 117. When computing diluted earnings per share, convertible securities
market price of the common stock was $25. Application of the are
treasury stock method for the assumed exercise of these warrants in a. ignored.
computing diluted earnings per share will increase the weighted b. recognized only if they are dilutive.
average number of outstanding shares by c. recognized only if they are antidilutive.
a. 30,000. d. recognized whether they are dilutive or antidilutive.
b. 24,000.
c. 6,000. 118. In determining diluted earnings per share, dividends on
d. 7,500. nonconvertible cumulative preferred stock should be
a. disregarded.
112. Ferry Corporation had 300,000 shares of common stock outstanding b. added back to net income whether declared or not.
at December 31, 2007. In addition, it had 90,000 stock options c. deducted from net income only if declared.
outstanding, which had been granted to certain executives, and d. deducted from net income whether declared or not.
which gave them the right to purchase shares of Ferry's stock at an
option price of $37 per share. The average market price of Ferry's 119. The if-converted method of computing earnings per share data
common stock for 2007 was $50. What is the number of shares that assumes conversion of convertible securities as of the
should be used in computing diluted earnings per share for the year a. beginning of the earliest period reported (or at time of issuance,
ended December 31, 2007? if later).
a. 300,000 b. beginning of the earliest period reported (regardless of time of
b. 331,622 issuance).
c. 366,600 c. middle of the earliest period reported (regardless of time of
d. 323,400 issuance).
d. ending of the earliest period reported (regardless of time of
MULTIPLE CHOICEEarnings Per ShareCPA Adapted issuance).

113. Peine Co. had 300,000 shares of common stock issued and
outstanding at December 31, 2006. No common stock was issued