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CHAPTER16

DI
LUTI
VESECURI
TIESANDEARNI
NGSPERSHARE
TRUE-
FALSE—Di
l
uti
veSecur
it
ies—Concept
ual
Answer No. Descr
ipt
ion
T 1. Conv ertibledebtandI FRSr equirement s.
F 2. Recogni zinggai n/lossondebtconv ersion.
T 3. Repor t
ingaddi ti
onal considerati
ont oencour ageconv ersi
on.
F 4. Exerciseofconv erti
blepreferenceshar es.
F 5. Conv ertiblepreferenceshar esexer cise.
T 6. All
ocat ingpr oceedsbet weendebtanddet achabl
ewar r
ants.
F 7. Account i
ngf ornondet achabl ewar rants.
T 8. I
ntrinsicv alueofashar eopt ion.
F 9. Compensat ionex pensei nfairvaluemet hod.
T 10. Serviceper i
odi nshar eoptionpl ans.
F 11. Account i
ngf ornonex er
ciseofshar eopt i
ons.
F 12. Affectofser vicecondi t
iononcompensat i
onexpense.
T 13. Cumul at iv
epr eferenceshar esandEPS.
F 14. Restatingshar esf orsharedi vi
dendsandshar esplit
s.
T 15. Shar ediv i
dendandwei ghted-averageshar esoutstanding.
F 16. Preferreddi v i
dendsandi ncomef rom conf inui
ngoper ati
ons.
T. 17. Repor t
ingEPSi ncompl excapi talst ructure.
F. 18. Dil
ut i
veshar eopt i
ons.
T 19. Cont i
ngent lyissuabl eshares.
F 20. Repor t
ingEPSf orincomef rom cont inuingoper ati
ons.

MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Concept
ual
Answer No. Descr
ipt
ion
d 21. Natureofconv ertiblebonds.
d 22. Recor dingconv ersionofbonds.
b 23. Classificationofaddi ti
onal consi derati
on(asweet ener).
S
c 24. Reasonsf ori
ssui ngconv er tibl
edebt .
S
d 25. Account i
ngf orconv erti
bledebtconv er
tedbeforemat uri
ty.
b 26. Conv ertiblebondschar act erist
ics.
d 27. ValuingConv ertiblebonds.
b 28. Conv ertiblepreferenceshar es.
S
d 29. Account i
ngf orconv ersionofpr efer
enceshar es.
b 30. Recor dingconv ersionofpr eferenceshar es.
d 31. Bondsi ssuedwi thdet achabl eshar ewar r
ants.
d 32. Debtequi tyfeaturesofdebti ssuedwi t
hsharewar rants.
P
d 33. Bondsi ssuedwi thdet achabl eshar ewar r
ants.
P
c 34. Distr
ibut ionofshar eright s.
S
b 35. Diff
erencebet weenconv ert i
bledebtandshar ewar r
ants.
c 36. Prepar ationofmemor andum ent ry.
c 37. Adjustmentoft otal compensat ion.
d 38. Charact er i
sti
csofr estri
ct edshar es.
16-2 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
S
c 39. Char
act
eri
sti
csofnoncompensat
oryshar
eopti
onpl
an.
a 40. Measur
ementofcompensat
ioninshar
eopti
on.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Concept
ual
(cont
.)
Answer No. Descr
ipt
ion
c 41. Recognit
ionofcompensat i
onexpensei nashareoptionpl
an.
a 42. Compensat i
onex penseinashar eopti
onplan.
d 43. Employeeshar epurchasepl ans.
a *
44. Compensat i
onex penseinai ncent
iveshar
eappreci
ationr
ight
spl
an.
d *
45. Shareappreci
at i
onright
spl an.
b *
46. I
ncenti
veshar eoptionplan.
b *
47. Share-
basedliabil
it
yawar ds.

MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
Answer No. Descr
ipt
ion
a 48. Conv ersionofconv erti
blebonds.
b 49. Conv ersionofconv erti
blebonds.
a 50. Exerciseofshar epur chaser ights.
b 51. Conv ersionofconv erti
blebonds.
c 52. Comput ati
onofconv erti
bledebtl i
abil
i
tycomponent .
b 53. Recor di
ngi ssuanceofconv er ti
blebonds.
c 54. Recor di
ngconv ersi
onofconv ert
iblebonds.
a 55. Recor di
ngset tl
ementofbondsatmat urit
y .
b 56. Account ingforinducedconv ersi
onofdebt .
d 57. Recor di
ngi ssuanceofconv er ti
blebonds.
c 58. Recor di
ngr epurchaseofconv erti
blepreferenceshares.
d 59. Conv ersionofconv erti
blepr eferenceshar es.
b 60. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 61. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 62. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 63. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 64. Recor di
ngshar epr emium f rom shar ewar rants.
b 65. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
b 66. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
c 67. Bondsi ssuedwi thdetachabl eshar ewar r
ant s.
b 68. Recor di
ngpai d-incapitalfr
om shar ewar r
ant s.
b 69. Determi necompensat ionexpensei nashar eoptionpl
an.
c 70. Determi necompensat ionexpensei nashar eoptionpl
an.
c 71. I
mpactofshar eopt i
onsonneti ncome.
b 72. Determi necompensat ionexpensei nashar eoptionpl
an.
b 73. Determi necompensat ionexpensei nashar eoptionpl
an.
d 74. Determi necompensat ionexpensei nashar eoptionpl
an.
d 75. Determi nesharepr emi um amounti nashar eoptionpl
an.
c 76. Determi necompensat ionexpensei nashar eoptionpl
an.
c 77. Netincomeef fectinashar eopt ionplan.
c 78. Determi necompensat ionexpensei nashar eoptionpl
an.
c 79. I
mpactofshar eopt i
onsonshar eholders’equity
.
b 80. Determi necompensat ionexpensei nashar eoptionpl
an.
a 81. Determi necompensat ionexpensei nashar eoptionpl
an.
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-3

c 82. I
ssuanceoftr
easur
ysharei
nashar eopt
ionpl
an.
b 83. Computat
ionofcompensat
ionexpensei
nrest
rictedsharepl
an.
d 84. Computat
ionofcompensat
ionexpensei
nshare-purchasepl
an.
MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
(cont
.)
Answer No. Descr
ipt
ion
b *
85. Compensat
ionexpenser
ecogni
zedi
nfi
rstyearinanSARpl
an.
b *
86. Compensat
ionexpenser
ecogni
zedi
nsecondy eari
nanSARplan.
a *
87. Compensat
ionexpenser
ecogni
zedi
nthi
rdyearinanSARplan.
P
Thesequest
ionsalsoappeari
ntheProbl
em-Solvi
ngSur
viv
alGui
de.
S
Thesequest
ionsalsoappeari
ntheStudyGuide.
*
Thistopi
cisdealtwit
hinanAppendixtothechapter
.

MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
Answer No. Descr
ipt
ion
d 88. Cashproceedsfrom issuanceofconverti
blebonds.
a 89. Bondissuewithdetachablesharewarrants.
c 90. Compensationexpensei nashareopti
onpl an.
c *
91. Compensationexpenser ecogni
zedinanSARpl an.

MULTI
PLECHOI
CE—Ear
ningsPerShar
e,Concept
ual
Answer No. Descr
ipt
ion
c 92. Si
mpl ecapi t
al structure.
d 93. Comput i
ngEPSf orasi mplecapital
structure.
d 94. Comput at
ionofwei ghted-averagesharesout st
andi
ng.
c 95. Effectoftreasuryshar esonEPS.
S
b 96. Repor t
ingEPSbycompani es.
P
b 97. Dil
utedEPSandconv ersi
onofbonds.
d 98. Dil
utedEPS.
b 99. Dil
utiveconv erti
blesecur it
ies.
a 100. Cumul ativeconv erti
blepreferencesharesi ncomeadjust
ment
.
d 101. Treasuryshar emet hod.
a 102. Treasuryshar emet hod.
b 103. Treasuryshar emet hod.
d 104. Antidi
lutiv
esecur i
ti
es.
d *
105. EPScal culati
onwi t
ht wodi l
utiveconvert
iblesecur
it
ies.

MULTI
PLECHOI
CE—Ear
ningsPerShar
e,Comput
ati
onal
Answer No. Descr
ipt
ion
c 106. Weight
edav er
agenumberofcommonsharesout
standi
ng.
c 107. Weight
edav er
agenumberofcommonsharesout
standi
ng.
b 108. Weight
edav er
agenumberofcommonsharesout
standi
ng.
b 109. Weight
edav er
agenumberofshar
esout
standi
ng.
c 110. Det
erminati
onofsharesusedi
ncomput
ingEPS.
a 111. Computati
onofearni
ngspershar
e.
16-4 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

c 112. BasicEPSwithconv
erti
blepref
erenceshares.
c 113. EPSandashar espl
it
.
d 114. Weightedav
eragenumberofcommonshar esout
standi
ng.
b 115. Dil
utedEPSandthetreasur
ysharemet hod.
MULTI
PLECHOI
CE—Ear
ningsPerShar
e,Comput
ati
onal(
cont
.)
Answer No. Descr
ipt
ion
b 116. Dil
utedEPSwi thconvertibl
ebonds.
c 117. Dil
utedEPSandcont i
ngenti ssuances.
d 118. BasicEPS.
c 119. Dil
utedEPSwi thconvertibl
ebondsandpr eferenceshares.
d 120. Numberofshar esincomput ingdilutedEPS.
c 121. Dil
utedEPS.
c 122. EPSandcont i
ngentissuances.
b 123. Dil
utedEPSwi thconvertibl
ebonds.
c 124. Dil
utedEPSwi thconvertibl
ebonds.
b 125. Dil
utedEPSwi thconvertibl
ebonds.
b 126. Dil
utedEPS.
d 127. BasicEPSwi t
hconv ert
iblebondsandconv erti
blepreferenceshares.
c 128. Dil
utedEPS.
b 129. Denominatorincomput ingbasi cEPSandDEPSwi t
hconv er
ti
blebonds.
b 130. Sharesoutst
andingforbasi cEPSandDEPS.
b 131. BasicEPSwi t
hconv ert
iblepr ef
erenceshar es.
c 132. Dil
utedEPSwi thconvertibl
ebonds.
a 133. BasicEPSandDEPSwi t
hconv ert
iblebondsi ssueddur i
ngy ear
.
c 134. BasicEPSwi t
hconv ert
iblepr ef
erenceshar esandconv ert
ibl
ebonds.
b 135. DEPSwi t
hconv ert
ibl
epr eferredstockandconv erti
blebonds.
c 136. DEPSandt hetreasuryshar emet hod.
d 137. DEPSusingthet r
easuryshar emet hod.

MULTI
PLECHOI
CE—Ear
ningsPerShar
e,CPAAdapt
ed
Answer No. Descr
ipt
ion
b 138. Deter
mineear ningspershare.
b 139. Deter
mineear ningspershare.
d 140. Deter
minedilutedEPS.
b 141. Numberofshar est ocalcul
atedi
l
utedEPS.
b 142. DEPSwi t
hconv ertibl
esecuri
ti
es.
d 143. Eff
ectofdivi
dendsonnonconv er
ti
blepr
efer
enceshar
es.
a 144. "I
fconver
ted"met hod.

EXERCI
SES
I
tem Descr
ipt
ion
E16-
145I
ssuance,conver
sion,andrepurchaseofconv
ert
ibl
ebonds.
E16-
146Conver
ti
blebonds( essay)
.
E16-
147I
ssuance,conver
sion,andrepurchaseofconv
ert
ibl
ebonds.
E16-
148I
ssuanceandconv ersi
onofbonds.
E16-
149St
ockoptions.
E16-
150Weight
edav er
ageshar esoutst
anding.
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-5

E16-
151Earni
ngspershare.
E16-
152Dil
utedear
ningspershare.
*
E16-
153Shareappr
eciat
ionri
ghts.

PROBLEMS
I
tem Descr
ipt
ion
P16-
154Convert
ibl
ebondsandsharewar r
ants.
P16-
155Earni
ngspershare.
P16-
156Basicanddil
utedear
ningspershare.
P16-
157Basicanddil
utedear
ningspershare.
P16-
158Basicanddil
utedear
ningspershare.

CHAPTERLEARNI
NGOBJECTI
VES
1. Descr
ibe t
he account
ing f
ort
he i
ssuance,conv
ersi
on,and r
eti
rementofconv
ert
ibl
e
secur
it
ies.
2. Expl
aint
heaccount
ingf
orconv
ert
ibl
epr
efer
enceshar
es.
3. Contr
astthe account
ing f
orshar
e war
rant
s and shar
e war
rant
sissued wi
th ot
her
secur
it
ies.
4. Descr
ibet
heaccount
ingf
orshar
ecompensat
ionpl
ansunderI
FRS.
5. Di
scusst
hecont
rov
ersyi
nvol
vi
ngshar
ecompensat
ionpl
ans.
6. Comput
eear
ningspershar
einasi
mpl
ecapi
tal
str
uct
ure.
7. Comput
eear
ningspershar
einacompl
excapi
tal
str
uct
ure.
*
8. Expl
aint
heaccount
ingf
orshar
e-appr
eci
ati
onr
ight
spl
ans.
*
9. Comput
eear
ningspershar
einacompl
exsi
tuat
ion.
16-6 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

SUMMARYOFLEARNI
NGOBJECTI
VESBYQUESTI
ONS
I
tem Typ I
tem Typ I
tem Typ I
tem Typ I
tem Typ I
tem Typ I
tem Typ
e e e e e e e
Lear
ningObj
ect
ive1
1. TF 22. MC 26. MC 50. MC 54. MC 88. MC 148. E
2. TF 23. MC 27. MC 51. MC 55. MC 145. E 154. P
3. TF S
24. MC 48. MC 52. MC 56. MC 146. E
21. MC S
25. MC 49. MC 53. MC 57. MC 147. E
Lear
ningObj
ect
ive2
4. TF 28. MC 30. MC 59. MC
5. TF S
29. MC 58. MC 148. E
Lear
ningObj
ect
ive3
6. TF 32. MC 36. MC 62. MC 66. MC 147. E
7. TF P
33. MC 35. MC 63. MC 67. MC 148. E
8. TF P
34. MC 60. MC 64. MC 68. MC 154. P
31. MC S
35. MC 61. MC 65. MC 89. MC
Learni
ngObj
ecti
ve4
9. TF 38. MC 43. MC 73. MC 78. MC 83. MC
10. TF S
39. MC 69. MC 74. MC 79. MC 84. MC
11. TF 40. MC 70. MC 75. MC 80. MC 90. MC
12. TF 41. MC 71. MC 76. MC 81. MC 149. E
37. MC 42. MC 72. MC 77. MC 82. MC
Learni
ngObj
ecti
ve6
13. TF 92. MC S
96. MC 109. MC 113. MC 156. P
14. TF 93. MC 106. MC 110. MC 138. MC 157. P
15. TF 94. MC 107. MC 111. MC 139. MC
16. TF 95. MC 108. MC 112. MC 140. MC
Learni
ngObj
ecti
ve7
17. TF 100. MC 116. MC 123. MC 130. MC 137. MC 155. P
18. TF 101. MC 117. MC 124. MC 131. MC 141. MC 156. P
19. TF 102. MC 118. MC 125. MC 132. MC 142. MC 157. P
20. TF 103. MC 119. MC 126. MC 133. MC 143. MC 158. P
P
97. MC 104. MC 120. MC 127. MC 134. MC 144. MC
98. MC 114. MC 121. MC 128. MC 135. MC 151. E
99. MC 115. MC 122. MC 129. MC 136. MC 152. E
Lear
ningObj
ect
ive8*
44. MC 46. MC 85. MC 87. MC 153. E
45. MC 47. MC 86. MC 91. MC
Lear
ningObj
ect
ive9*
105. MC
Note:TF=Tr ue-Fal
se
MC=Mul tipl
eChoice
E=Exercise
P=Problem
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-7
16-8 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

TRUE-
FALSE—Concept
ual
1. I
FRSrequir
esthatconv er
ti
bledebtbesepar
atedi
ntoi
tsl
i
abi
l
ityandequi
tycomponent
s
f
oraccount
ingpurposes.

2. Compani
esr
ecogni
zeagai
norl
ossont
heconv
ersi
onofconv
ert
ibl
edebtbef
oremat
uri
ty.

3. Whenanissueroff
erssomeform ofaddi
ti
onalconsi
derat
ion(
asweet ener
)toencour
age
ofi
tsconv
erti
bledebt
,itr
epor
tst
hesweetenerasacurrentper
iodexpense.

4. Theissuerofconver
tibl
epr
efer
enceshar
esusest
hef
airv
aluemet
hodt
orecor
dthe
conv
ersionoft
heshares.

5. Compani
esr
ecogni
zeagai
norl
osswhenshar
ehol
der
sexer
ciseconv
ert
ibl
epr
efer
ence
shar
es.

6. Acompanyshoul
dall
ocat
etheproceedsfr
om thesal
eofdebtwi
thdet
achabl
eshar
e
war
rant
sbet
weenthet
wosecur
it
iesbasedonthei
raf
airval
ues.

7. Nondetachabl
ewar rants,unli
kedetachabl
ewar
rant
s,ar
enotconsi
der
edacompound
i
nst
rumentforaccountingpurposes.

8. Theint
ri
nsi
cv al
ueofashar eopti
oni
st hedi
ff
erencebet
weent
hemar
ketpr
iceoft
he
shar
esandtheexer
cisepr
iceoft
heopt
ionsatt
hegrantdat
e.

9. Underthefai
rval
uemethod,compani
escomputet
otalcompensat
ionexpensebasedon
thef
airval
ueofopti
onsonthedat
eofexer
cise.

10. Theservi
ceper
iodi
nshar
eopt
ionpl
ansi
sthet
imebet
weent
hegr
antdat
eandt
he
vest
ingdat
e.

11. Ifanemployeefai
lstoexer
ciseashar eopt
ionbef
orei
tsexpi
rat
iondat
e,t
hecompany
shoul
ddecreasecompensat
ionexpense.

12. Ifaservi
ceconditi
onexist
s,t
hecompanyi
snotper
mit
tedt
oadj
ustt
heest
imat
eof
compensati
onexpense.

13. I
fpr
efer
encesharesarecumul
ati
veandnodiv
idendsar
edeclar
ed,t
hecompanysubt
ract
s
t
hecurr
entyearpr
efer
encedi
vi
dendincomputi
ngearni
ngspershar
e.

14. Whensharedi
vi
dendsorshar
espl
it
soccur,
companiesmustr
estat
ethesharesout
stand-
i
ngaftert
heshar
edivi
dendorspl
i
t,i
nordertocomputet
heweight
ed-av
eragenumberof
shar
es.

15. Ifa share div


idend occur
s af
tery
ear-
end,butbef
orethe fi
nanci
alst
atements,are
aut
horizedforissuance,
acompanymustrest
atet
hewei
ght
ed-aver
agenumberofshares
out
standingfortheyear.

16. Pref
erencediv
idendsaresubtract
edfrom neti
ncomebutnoti
ncomef
rom cont
inui
ng
operat
ionsi
ncomputingear
ningspershar
e.
Di
l
uti
veSecur
it
iesandEar
ningsperShar
e 16-9

17. Whenacompanyhasacompl
excapi
talst
ruct
ure,i
tmustr
epor
tbot
hbasi
canddi
l
uted
ear
ningspershar
e.

18. I
ncomput i
ngdil
utedear
ningspershar
e,shar
eopt
ionsar
econsi
der
eddi
l
uti
vewhent
hei
r
opt
ionpr
iceisgr
eatert
hanthemarketpri
ce.

19. Thenumberofcont i
ngentshar
estobeincludedi
ndi
lut
edear
ningspershar
eisbasedon
thenumberofsharesthatwouldbeissuableasi
ftheendoftheperi
odweretheendof
thecont
ingencyper
iod.

20. Acompanyshouldrepor
tpershar
eamount
sfori
ncomef
rom cont
inui
ngoper
ati
ons,but
notf
ordi
scont
inuedoper
ati
ons.

Tr
ue-
Fal
seAnswer
s—Concept
ual
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
1. T 6. T 11. F 16. F
2. F 7. F 12. F 17. T
3. T 8. T 13. T 18. F
4. F 9. F 14. F 19. T
5. F 10. T 15. T 20. F

MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Concept
ual
21. Convert
ibl
ebonds
a.hav epri
orit
yoverot
heri
ndebtedness.
b.ar eusual
lysecur
edbyafir
storsecondmor tgage.
c. payint
erestonl
yint
heeventearni
ngsar esuff
ici
entt
ocov
ert
hei
nter
est
.
d.maybeexchangedf orequi
tysecurit
ies.

22. Theconversionofbondsismostcommonl
yrecor
dedbyt
he
a.increment al
met hod.
b.proporti
onal method.
c. f
airval
uemet hod.
d.bookv aluemet hod.

23. Whenabondi ssuerof


fer
ssomef or
m ofaddit
ionalconsi
der
ati
on(
a“sweet
ener
”)t
o
i
nduceconversion,t
hesweeteneri
saccount
edf
orasa( n)
a.equit
yitem.
b.expense.
c. l
oss.
d.noneoft hese.
S
24. Corporati
onsissueconv er
ti
bledebtf ort
womainreasons.Oneisthedesi
retorai
seequit
y
capit
althat,
assumi ngconversion,wil
lar
isewhentheorigi
naldebti
sconver
ted.Theot
her
i
s
a.t heeasewi thwhi chconv ert
ibl
edebtissoldeveni ft
hecompanyhasapoorcr edi
t
rat
ing.
b.t hefactthatequit
ycapitalhasissuecost
sthatconvert
ibl
edebtdoesnot.
16-10 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

c. t
hatmanycor por ati
onscanobt ainfi
nancingatlowerr ates.
d.thatconvert
iblebondswi llalwayssellatapr emium.
S
25. Whenconverti
bledebti snotconv ert
edatmat uri
ty
a.againorl ossi sr ecordedf orthedifferencebet weenthebookv al
ueoft hedebtand
t
hepresentvalueoft hecashf lows.
b.theamountor i
ginallyall
ocatedt oequityisrecordedasagai nonret
ir
ement .
c. t
heamountal l
ocat edt otheequi tycomponentatt heissuancedat
eisr ecordedasa
l
ossonretir
ement .
d.thecarry
ingv al
ueoft hebondequal sitsfacevalueandi tisr
emovedfrom thebooks.

26. Converti
blebonds
a.Ar eseparatedintothebondcomponentandt heexpensecomponent
.
b.Al l
owacompanyt oissuedebtfi
nanci
ngatcheaperrat
es.
c. Areseparatedintotheircomponent
sbasedonr el
ati
vefai
rval
ues.
d.Al lofthechoicesarecor r
ect
.

27. MaeJongCor pi ssues$1, 000,000of10% bondspay ablewhi chmaybeconv er


tedinto
10,
000shar esof$2parv alueordinar
yshar es.Themar ketr ateofi nterestonsi mil
ar
bondsis12%.I nt
erestispay ableannual
lyonDecember31, andt hebondswer eissuedfor
tot
alproceedsof$1, 000,
000.I naccounti
ngforthesebonds, MaeJongCor p.wil
l
a.Fi r
stassignav alueoftheequi t
ycomponent , t
hendetermi netheliabil
i
t ycomponent.
b.Assi gn no value tot he equitycomponentsi nce the conv ersion privi
l
ege is not
separabl
efrom thebond.
c. Fir
stassignav aluetothel i
abil
i
tycomponentbasedont hef aceamountoft hebond.
d.Uset he“wi
th-and-wit
hout ”methodtov al
uet hecompoundi nstr
ument .

28. Convertibl
epreferenceshar es
a.Ar ecompoundi nstr
ument swit
hbothali
abil
i
tyandanequitycomponent.
b.Includeanopt i
onf ortheholdert
oconvertpref
erencesharesint
oafixednumberof
ordinaryshares.
c. Uset he“with-and-wit
hout”methodtoval
uethecompoundi nst
rument
.
d.Al lofthechoi cesarecor r
ect
.
S
29. Theconversi
onofpr efer
enceshar esi ntoordinaryshar
esrequi
rest
hatanyexcessoft
he
parval
ueoft heordi
narysharesissuedov erthecarryi
ngamountofthepr
efer
enceshar
es
bei
ngconv er
tedshouldbe
a.refl
ectedcurrentl
yinincome.
b.refl
ectedcurrentl
yinothercompr ehensivei ncome.
c. t
reat
edasapr i
orperiodadjust
ment .
d.treat
edasadi r
ectreducti
onofr etainedear ni
ngs.

30. Theconversionofpr ef
erenceshar
esmayber
ecor
dedbyt
he
a.incr
ement al
met hod.
b.bookv aluemet hod.
c. marketvaluemet hod.
d.parv al
uemet hod.

31. Whenthecashpr oceedsfrom bondsi


ssuedwithdetachabl
eshar
ewar r
antsexceedt
he
fai
rval
ueofthebondswi t
houtthewarr
ants,
theexcessshoul
dbecredi
tedto
a.sharepremium—or di
nary.
Di
l
uti
veSecur
it
iesandEar
ni e 16-11
ngsperShar

b.r etai
nedearni
ngs.
c. shareali
abili
tyaccount
.
d.pr emium-sharewarrant
s.

32. Proceedsfrom ani ssueofdebtsecuri


ti
eshav i
ngsharewar r
ant
sshouldnotbeal
l
ocat
ed
betweendebtandequi t
yfeatur
eswhen
a.t hefai
rv al
ueoft hewarrant
sisnotreadi
lyavail
abl
e.
b.exer ci
seoft hewar r
antswithi
nthenextf
ewf iscal
peri
odsseemsremote.
c. thewarrantsissuedwiththedebtarenon-det
achable.
d.Pr oceedsshoul dbeall
ocatedbetweendebtandequi t
yforal
loft
hese.
P
33. A corporati
onissuesbondswi t
hdet achabl
ewarrant
s.Theamountt ober ecor
dedas
sharepremium isprefer
abl
y
a.zer o.
b.cal cul
atedastheexcessoftheproceedsovert
hefacevalueofthebonds.
c. equal t
othemar ketval
ueofthewarrant
s.
d.cal cul
atedastheexcessoftheproceedsovert
hefai
rvalueofthebonds.
P
34. Thedist
ri
buti
onofshar
eri
ght
stoexi
sti
ngor
dinar
yshar
ehol
der
swi
l
lincr
easeshar
e
premi
um att
he
DateofIssuance Dat
eofExer ci
se
oftheRights oftheRights
a. Yes Yes
b. Yes No
c. No Yes
d. No No
S
35. Themaj ordi f
ferencebetweenconv ert
ibl
edebtandsharewarrant
sist hatuponexerci
se
oft
hewar rants
a.t hesharesar ehel dbythecompanyf oradefi
nedperi
odofti
mebef oretheyar
eissued
tothewar rantholder.
b.t heholderhast opayacertai
namountofcasht oobtai
ntheshar
es.
c. theshar esinv olv
edarer est
ri
ctedandcanonl ybesoldbyt herecipi
entaft
eraset
peri
odoft ime.
d.noshar epremi um canbeapar tofthetr
ansacti
on.

36. AccordingtoIFRS,acompanymakesonl yamemor andum entrywhen


a.Compani esgivewarrant
stoexecut
ivesandempl oyeesasaf orm ofcompensat
ion.
b.Compani esincl
udewar r
antstomakeasecurit
ymor eat
tracti
ve.
c. Compani esissueri
ghtstoexi
sti
ngsharehol
ders.
d.All ofthechoicesarecorr
ect.

37. AccordingtoIFRS,oncethet otalcompensati


onismeasuredatthedat eofgrant
a.Itcanbechangedi nfutureper i
odsrel
atedtoachangeinmar ketcondi
ti
ons.
b.Itcanbechangedt or efl
ectt heri
seorf al
linthemar ketpriceoft hecompany’s
ordinar
yshares.
c. Acompanyi spermitt
edt oadj ustt
henumberofshareopt i
onsexpectedt otheact
ual
numberofi nstr
umentsv ested.
d.Al lofthechoicesarecor r
ect.
16-12 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

38. Rest r
ictedshar es
a.Bet teral i
gnt heempl oyeeincent i
veswi tht hecompani es’incent
ives.
b.Resul ti nlessdi l
utiontoexi st
ingshar ehol ders.
c. Nev erbecomecompl etel
ywor t
hless.
d.Al loft hechoi cesar ecorrect.
S
39. Whichoft hef ollowingi snotachar acteri
sticofanoncompensat orystockopti
onplan?
a.Subst antiallyall f
ull-
ti
meempl oy eesmaypar ti
cipateonanequi tabl
ebasis.
b.Thepl anof fersnosubst antiv
eopt i
onf eature.
c. Unlimitedt i
meper i
odper mi t
tedf orexer ciseofanopt i
onasl ongast heholderissti
l
l
empl oy edbyt hecompany .
d.Di scountf rom t hemar ketpr i
ceoft hest ocknogr eat
erthanwoul dbereasonableinan
offerofst ockt ost ockholdersorot hers.

40. Thedateonwhi chtomeasurethecompensati


onel ementinashareopt
iongr
ant
edt
oa
cor
porat
eempl oyeeordi
nar
il
yisthedateonwhichtheemployee
a.isgrantedtheopt i
on.
b.hasper for
medal lcondi
ti
onsprecedentt
oexerci
singt
heoption.
c. mayfir
stexer ci
setheopti
on.
d.exerci
sest heopt i
on.

41. Compensat ionexpenseresul


ti
ngfrom acompensatoryshar
eoptionplanisgener
all
y
a.r ecognizedintheperi
odofexerci
se.
b.r ecognizedintheperi
odofthegrant.
c. all
ocatedtot heperi
odsbenef
it
edbyt heemploy
ee'srequi
redservi
ce.
d.al l
ocatedov ertheperi
odsoft
heempl oyee'
sser
v i
celi
fetoret
irement.

42. Thedat
eonwhichtotalcompensat
ionexpensei
scomputedi
nashar
eopt
ionpl
ani
sthedat
e
a.ofgrant.
b.ofexerci
se.
c. t
hatthemarketpri
cecoinci
deswiththeopti
onpri
ce.
d.thatthemarketpri
ceexceedstheoptionpr
ice.

43. Employ eeshar epur chaseplans( ESPP)


a.Per mi tallemploy eestopur chaseshar esatadiscountedpri
ce.
b.Ar egener all
yconsi der
ednoncompensat oryandr esultinnocompensat
ionexpense
beingr ecorded.
c. Distri
buter estr
ictedsharest oempl oyeesforashor tperi
odoft
ime.
d.Al lofthechoi cesar ecorrectregardingESPP.

*
44. Inaccountingforshare-
appreci
ati
onri
ghtspl
ans,compensat
ionexpensei
sgeneral
ly
a.notr ecognizedbecausenoexcessofmar ketpr i
ceov
ertheoptionpr
iceexi
stsatt
he
dateofgr ant.
b.r ecognizedintheperi
odoft hegr
ant.
c. all
ocatedov ertheser
viceperi
odoftheemployees.
d.r ecognizedintheperi
odofexerci
se.

*
45. Forshar
eappreci
ationright
s,t
hemeasurementdat
ef orcomput
ingcompensat
ioni
sthe
dat
e
a.theri
ght
smat ure.
b.theshar
e’spri
cer eachesapredet
ermi
nedamount.
Di
l
uti
veSecur
it
iesandEar
ni e 16-13
ngsperShar

c. ofgr
ant.
d.ofexerci
se.
16-14 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

*
46. Anexecuti
vepay snotaxesatt i
meofexerci
sei
na(
an)
a.shareappr eci
ati
onrightsplan.
b.incenti
veshar eopt
ionplan.
c. nonqual
if
iedshareopt i
onplan.
d.Taxeswoul dbepai
di nallofthese.

*
47. Acompanyestimatesthefai
rv al
ueofSARs, usi
nganopt
ion-
pri
cingmodel
,for
a.share-
basedequityawards.
b.share-
basedli
abili
tyawards.
c. bot
hequit
yawar dsandli
abi l
i
tyawards.
d.neit
herequi
tyawar dsorl
iabil
ityawar
ds.

Mul
ti
pleChoi
ceAnswer
s—Di
l
uti
veSecur
it
ies,
Concept
ual
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
21. d 26. b 31. d 36. c 41. c *
46. b
22. d 27. d 32. d 37. c 42. a *
47. b
23. b 28. b 33. d 38. d 43. a
24. c 29. d 34. c 39. c *
44. c
25. d 30. b 35. b 40. a *
45. d

MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
48. FogelCo.has$2, 500,
000of8% conv erti
blebondsout standi
ng.Each$1, 000bondi s
converti
bleint
o30shar esof$30parv alueor dinar
yshar es.Thebondspayi ntereston
January31andJul y31.OnJuly31,2012,thehol dersof$800, 000bondsexer cisedt he
conversi
onpr i
vil
ege.Ont hatdat
ethemar ketpr i
ceoft hebondswas105andt hemar ket
pri
ceoft heordinaryshareswas$36.Thet otalunamor ti
zedbondpr emium atthedat eof
conversi
onwas$175, 000.Fogel
shouldrecord,asar esul
toft hi
sconver
sion,a
a.cr editof$136,000toSharePremium—Or dinary.
b.cr editof$120,000toSharePremium—Or dinary.
c. creditof$56,000toonBondsPay abl
e.
d.lossof$8, 000.

49. OnJuly1,2012,ani nter


estpaymentdat e,$60,
000ofPar ksCo.bondswer econv
ert
ed
i
nto1,200ordinarysharesofPar ksCo.eachhavingaparv alueof$45andafai
rval
ueof
$54.Therei
s$2, 400unamor t
izeddiscountonthebonds.Parkswouldrecor
d
a.nochangei nsharepremium.
b.a$3, 600increaseinsharepremium.
c. a$7,200increaseinsharepremium.
d.a$4, 800increaseinsharepremium.

50. MorganCor porati


onhadt woi ssuesofsecur it
iesoutstanding:or di
narysharesandan8%
conver
t i
blebondi ssueinthef aceamountof$16, 000,000.Interestpay mentdatesoft he
bond issue ar e June 30th and December31st .The conv er si
on clause int he bond
i
ndentureent itl
est hebondholderst
or ecei
v efortysharesof$20parv alueordinaryshar es
i
nexchangef oreach$1,000bond.OnJune30, 2010,t
hehol dersof$2, 400,
000f acev alue
bondsexer cisedtheconv ersi
onpr i
vi
lege.Themar ketpriceoft hebondsont hatdatewas
$1,
100perbondandt hemar ketpri
ceoft heshar eswas$35.Thet otalunamor t
izedbond
di
scountatt hedat eofconversionwas$1, 000,000.Whatamountshoul dMor gancr editto
Di
l
uti
veSecur
it
iesandEar
ni e 16-15
ngsperShar

theaccount"shar
epr
emi
um—or
dinar
y,"asar
esul
toft
hisconv
ersi
on?
a.$330,000.
b.$160,000.
c. $1,
440,000.
d.$720,000.

51. Li
tkeCorporat
ionissuedatapr emi um of$5,000a$100,000bondi ssueconvert
ibl
einto
2,
000or di
naryshares( parv al
ue$40) .Att hetimeoftheconv ersi
on,theunamor ti
zed
pr
emi um i
s$2,000,themar ketvalueoft hebondsis$110,000,
andt hesharesarequoted
onthemar ketat$60pershar e.Ifthebondsar econvert
edor di
naryshares,whatisthe
amountofsharepremi um t
ober ecordedont heconv
ersi
onofthebonds?
a.$25,000
b.$22,000
c. $32,
000
d.$40,000

52. MaeJongCor p.issues1,000conv ert


ibl
ebondsatt hebeginningof2011.Thebondshav e
af our-yearterm wi thast atedr at
eofi nter
estof6per cent,andar eissuedatparwitha
facev alueof€1, 000perbond( t
het ot
alproceedsr ecei
vedfrom issuanceofthebondsar e
€1,000,000) .Interestispayabl eannuallyatDecember31.Eachbondi sconver
ti
bleinto
250or dinaryshar eswi t
haparv alueof€1.Themar ketrateofi nter
estonsimilarnon-
conv ertibl
edebti s9percent .Comput etheliabil
i
tycomponentofMaeJong’ sconv er
ti
ble
dent.Thef oll
owi ngpresentv al
uef act
orsareav ai
lable:
PVOr dinaryAnnuity–4per iods
6% 3.46511
9% 3.23972

PVof1–4per
iods
6% .
79209
9% .
70843

a.€1,000,
000
b.€750,000
c. €902,
813
d.€916,337

53. MaeJongCor p.issues1,000convert


ibl
ebondsatt hebeginningof2011.Thebondshav e
af our-yeart erm wi thast at
edrateofinter
estof6per cent,andar eissuedatparwitha
facev alueof€1, 000perbond( thetotal
proceedsrecei
vedfrom issuanceofthebondsar e
€1,000,000) .I nteresti
spay abl
eannuallyatDecember31.Eachbondi sconver
ti
bleinto
250or dinaryshar eswithaparv alueof€1.Themar ketrateofi nter
estonsimilarnon-
conv ertibl
edebti s9percent.WhenMaeJongr ecordstheissuanceoft hesebonds,how
muchwi l
litcr edittoShar ePremium—Conv ersi
onEqui t
y?Thef ol
lowingpresentvalue
factorsar eav ai l
able:
PVOr dinaryAnnuity–4periods
6% 3.46511
9% 3.23972

PVof1–4periods
6% .
79209
9% .
70843
16-16 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

a.€- 0-
b.€97,187
c. €83,
663
d.€250,000

54. MaeJongCor p.issued1,000conv erti


blebondsatt hebeginningof2011.Thebondshav e
af our-yeart er
m wi thast at
edr ateofinter estof6percent,andar eissuedatparwi tha
facev alueof€1, 000perbond( thetotalproceedsrecei
vedfrom issuanceoft hebondsar e
€1,000,000) .Int
er esti
spay ableannual l
yatDecember31.Eachbondi sconverti
bleint
o
250or dinaryshar eswi t
haparv alueof€1.Themar ketrateofi nterestonsimil
arnon-
conv erti
bl edebtis9per cent.Assumet hatatt hei
ssuancedat e,€97,187wascr edit
edto
SharePr emi um—Conv er
sionEqui tyandt hatt hebondswer enotconv ert
edatmat urit
y.
Whatamountwi llMaeJongcr edittoShar ePr emi
um—Or di
nar yatthemat uri
tydate?The
foll
owi ngpr esentv al
uefactorsareav ai
lable:
a.€750, 000
b.€652, 813
c. €847, 187
d.€347, 187

55. MaeJongCor p.issued1, 000conv ert


iblebondsatt hebeginningof2011.Thebondshav e
af our-yeart erm wi thast at
edr at
eofi nter
estof6per cent,andar eissuedatparwi t
ha
facev alueof€1, 000perbond( t
het ot
al proceedsr
eceivedfrom issuanceoft hebondsar e
€1,000,000) .Inter estispay abl
eannual lyatDecember31.Eachbondi sconv er
ti
bleinto
250or dinaryshar eswi thaparv alueof€1.Themar ketrateofi nterestonsimilarnon-
conv erti
bl edebti s9per cent.Assumet hatattheissuancedat e,€97,187wascr editedto
SharePr emi um—Conv ersionEquity.Thebondswer enotconv ert
edatmat uri
tyandMae
Jongpay sof ftheconv erti
bledebthol ders.Whatamountwi l
lMaeJongr ecor
dasagai n
oral ossont hist ransaction?
a.€- 0-
b.€97, 187
c. €24, 297
d.€250, 000

56. MaeJongCor p.issued1, 000conv er t


iblebondsatt hebegi nningof2011.Thebondshav e
af our-yearterm wi thast atedr ateofi nterestof6per cent ,andar eissuedatparwi t
ha
facev alueof€1, 000perbond( t
het otal proceedsr ecei
vedf rom issuanceoft hebondsare
€1,000,000).I nterestispay abl eannual lyatDecember31.Eachbondi sconvert
ibl
einto
250or dinar
yshar eswi thaparv alueof€1.Themar ketr ateofi nter
estonsi mil
arnon-
conv erti
bledebti s9per cent .OnDecember31,2012,MaeJongwi shestoreduceits
annuali nterestcost .Thecompanyagr eest opayt hehol derofi tsconv er
ti
blebondsan
additional€40, 000i ftheywi l
lconv er
t.Assumi ngconv ersionoccur s,MaeJong’ sjour
nal
entryt orecordt heconv ersionwi llincludeal lofthefoll
owi ngexcept
a.Debi tBondsPay able€1,000, 000.
b.Debi tShar ePr emium—Or di
nar y€40, 000.
c. Cr editCash€40, 000.
d.Cr editShar eCapi t
al—Or dinary€250, 000.
Di
l
uti
veSecur
it
iesandEar
ni e 16-17
ngsperShar

57. Pelton,I
nc.issued£2,000,
000parv al
ue,7% conver
tibl
ebondsat99f orcash.Thenet
presentval
ueoft hedebtwit
houttheconversi
onfeat
ureis£1,
9000,
000.Whatamountwil
l
Pelotonassi
gnt otheequi
tyfeat
ureofthesebonds?
a.£100, 000
b.£-0-
c. £99,000
d.£80, 000

58. OnJanuary2, 2012,LexxMarkCo.issues2,000conv er


ti
blepr
efer
encesharest
hathavea
parvalueof€20pershar e.Theshar eswer eissuedatapr i
ceof€400pershar e.On
December31,2014,LexxMar kCo.r epurchasest heconver
ti
blepref
erenceshar
esf or
€820,
000.Ont hi
sdat e,
LexxMarkwillr
ecord
a.Al ossof€20,000.
b.Acr editt
oShar ePremium—Conv ersi
onEquity€40,000.
c. AdebittoRetainedEarni
ngs€20,000.
d.Acr editt
oShar eCapit
al—Pref
erence€40,000.

59. In 2011,Ekl und,I nc.,i


ssued for$103 pershar e,60,000 shar
es of$100 parv alue
conv erti
blepr eferenceshares.Oneshar eofpr ef
erencesharescanbeconv ert
edi nto
threeshar esofEkl und'
s$25parv alueordinar ysharesattheopt i
onoft heprefer
ence
sharehol der.InAugust2012, all
ofthepref
er enceshar eswereconvert
ed.Thefairval
ueof
theor dinaryshar esatt hedateoftheconv ersionwas$30pershar e.Whattotalamount
shoul dbecr editedt oshar
epr emium—ordi naryasar esultoftheconv er
sionoft he
preferenceshar esi ntoordi
naryshar
es?
a.$1, 020,000.
b.$780, 000.
c. $1, 500,000.
d.$1, 680,000.

60. OnDecember1,2012,Lest erCompanyi ssuedat103,t wohundredofi t


s9%,$1, 000
bonds.At t
achedt oeachbondwasonedet achabl
esharewar r
antenti
tl
ingthehol derto
purchase10shar esofLest
er'sor
dinaryshar
es.OnDecember1, 2012,
thefai
rv al
ueoft he
bonds,withoutthesharewar r
ant
s,was95,andt hefairval
ueofeachsharewar rantwas
$50.Theamountoft heproceedsfrom thei
ssuancethatshoul
dbeaccount edforast he
i
nit
ialcarry
ingvalueofthebondspay abl
ewouldbe
a.$195, 700.
b.$190, 000.
c. $200,000.
d.$206, 000.

61. OnMar ch1,2012,RuizCor porati


onissued$800,000of8%nonconv er
ti
blebondsat104,
whichar edueonFebr uary28,2032.I naddit
ion,each$1,
000bondwasi ssuedwi th25
detachableshar
ewar r
ants,eachofwhi chenti
tl
edthebondhol
dertopurchasef or$50one
shareofRui zor dinar
yshar es,parv alue$25.Thebondswi thoutthewar rantswould
normallysel
lat95.OnMar ch1, 2012,thefai
rvalueofRui
z’
sordinar
yshareswas$40per
shareandt hef airval
ueoft hewar r
ant swas$2.Whatamountshoul dRuizr ecor
don
Mar ch1,2012asshar epremi um—shar ewarr
ants?
a.$40, 000
b.$41, 600
c. $72,000
d.$83, 200
16-18 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

62. During2012,GordonCompanyi ssuedat104threehundred, $1,


000bondsduei ntenyears.
Onedet achabl
eshar ewarrantentit
li
ngt heholdertopur chase15shar esofGor don’s
ordinar
yshareswasat t
achedt oeachbond.Att hedateofi ssuance,t
hemar ketval
ueof
the bonds,withoutthe share warrant
s,was quot ed at96.The f airv al
ue ofeach
detachablewarrantwasquot edat$40.Whatamount ,ifany ,oftheproceedsfrom the
i
ssuanceshouldbeaccount edforaspartofGordon’sequit
y ?
a.$0
b.$12, 000
c. $24,000
d.$12, 480

63. OnApr i
l7,2012,Kegi
nCor por
ati
onsol da$2, 000,
000,twent y-
year,8percentbondissue
for$2,120,
000.Each$1,000bondhast wodet achablewarrants,eachofwhi chpermit
sthe
purchaseofoneshar eofthecorporati
on'
sordinarysharesfor$30.Theshar eshaveapar
value of$25 pershar e.Immediatelyaftert he sal
e oft he bonds,the corporat
ion'
s
securi
tieshadthefoll
owingfai
rvalues:
8%bondwi t
houtwar
rant
s $1,
008
Warrant
s 21
Or
dinaryShar
es 28
Whataccountsshoul
dKegi
ncr
editt
orecor
dthesal
eofthebonds?
a.BondsPay abl
e $2,077,
600
SharePr
emium—ShareWar
rants 42,
400
b.BondsPay abl
e $2,035,
200
SharePr
emium—ShareWar
rants 84,
800
c. BondsPayabl
e $2,016,
000
SharePr
emium—ShareWar
rants 104,
000
d.BondsPay abl
e $2,120,
000

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions64and65.

OnMay1, 2012, PayneCo.i


ssued$300,000of7%bondsat103, whicharedueonApri
l30,2022.
Twentydetachableshar
ewar r
ant
sent i
tl
ingtheholdertopurchasefor$40oneshar
eofPay ne’s
ordi
naryshares,$15parv al
ue,wer eattachedtoeach$1, 000bond.Thebondswi t
houtt he
warrant
swouldsel l
at96.OnMay1, 2012,thefai
rvalueofPayne’sshar
eswas$35pershareand
ofthewarr
antswas$2.

64. OnMay1, 2012,


Pay
neshoul
dcr
edi
tShar
ePr
emi
um –Shar
eWar
rant
sfor
a.$9,000.
b.$12,000.
c. $21,
000.
d.$12,360.

65. OnMay1, 2012,Payneshoul


drecor
dbondsatpay
abl
e
a.discountof$296,640.
b.discountof$288,000.
c. di
scountof$300,000.
d.premium of$309,000.
Di
l
uti
veSecur
it
iesandEar
ni e 16-19
ngsperShar

66. VernonCorporati
onof fer
eddetachable5-yearwarrantstobuyoneor di
nar
yshare(par
val
ue$5)at$20( atat i
mewhent heshar esweresel
lingfor$32)
.Thepr i
cepai
dfor2,
000,
$1,000bondswi t
ht hewarrant
sattachedwas$205, 000.Themar ketpri
ceoftheVernon
bondswithoutthewar r
antswas$180, 000,andthemar ketpri
ceoft hewarr
antswit
hout
thebondswas$20, 000.Whatamountshoul dbeall
ocatedtothewar r
ants?
a.$20,000
b.$25,000
c. $24,
000
d.$20,500

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions67and68.

OnMay1, 2012,MarlyCo.issued$500,000of7%bondsat103, whicharedueonApril


30,2022.
Twentydetachabl
estockwar r
antsentitl
ingthehol
dertopurchasefor$40oneshareofMarly
’s
ordi
naryshares$15parvalue,wereattachedtoeach$1,000bond.Thebondswithoutthe
warrant
swoul dsel
lat96.OnMay1, 2012, t
hefai
rval
ueofMar ly’
sshareswas$35pershareand
ofthewarrantswas$2.

67. OnMay1, 2012,


Mar
lyshoul
drecor
dbondspay
abl
eat
a.$515,000.
b.$500,000.
c. $480,
000.
d.$494,400.

68. OnMay1, 2012,


Mar
lyshoul
dcr
edi
tShar
ePr
emi
um–Shar
eWar
rant
sfor
a.$20,600
b.$35,000
c. $20,
000
d.$15,000

69. OnJul y1, 2012,Ell


i
sonCompanygr antedSam Wi ne,
anempl oyee,anopt
iontobuy400
sharesofEl li
sonCo.shar esfor$30pershar e,t
heopt i
onexer ci
sablef
or5yearsfr
om
dateofgr ant.Usingaf airvalueoptionprici
ngmodel ,t
otalcompensati
onexpenseis
determinedt obe$1, 800.Wi neexer ci
sedhisoptiononOct ober1,2012andsoldhi
s400
sharesonDecember1, 2010.Quot edmar ketpr
icesofElli
sonCo.sharesin2012were:
July1 $30pershar e
October1 $36pershar e
December1 $40pershar e
Theser v
iceper
iodisfort
hreeyearsbegi
nningJanuar
y1,2012.Asaresul
toft
heopti
on
grant
edt oWine,usi
ngthefai
rvaluemethod,El
li
sonshoul
drecogni
zecompensat
ion
expenseonitsbooksintheamountof
a.$1, 800.
b.$600.
c. $450.
d.$0.

70. OnJanuary1,2012,TrentCompanygrant
edDickWill
i
ams, anemployee,anopti
ontobuy
100shar
esofTr entCo.sharesf
or$30pershare,
theopti
onexerci
sablefor5yearsfr
om
dat
eofgrant.Usingafairval
ueopt
ionpri
cingmodel
,tot
alcompensationexpenseis
16-20 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

det
erminedt obe$900.Wi
l
li
amsexerci
sedhi
soptiononSept
ember1,2012,
andsoldhi
s
100sharesonDecember1,2012.Quot
edmarketpri
cesofTr
entCo.shar
esdur
ing2012
were:
January1 $30pershar
e
September1 $36pershar
e
December1 $40pershar
e
Theser vi
ceperiodi
sfortwoy ear
sbeginni
ngJanuar
y1,2012.Asar esultoft
heopti
on
grant
edt oWi l
li
ams,usingt
hef ai
rval
uemethod,Tr
entshouldrecognizecompensat
ion
expensef or2012onitsbooksintheamountof
a.$1, 000.
b.$900.
c. $450.
d.$0.

71. OnDecember31, 2010, GonzalezCompanygr antedsomeofi tsexecutivesopt ionst o


purchase100, 000shar esofthecompany ’s$10paror dinarysharesatanopt i
onpr iceof
$50pershar e.TheBl ack-Scholesopt ionpr ici
ngmodel determinestotal compensat ion
expenset obe$750, 000.Theopt ionsbecomeexer cisableonJanuar y1, 2011, and
representcompensat ionforexecut i
ves’ser vi
cesov erat hr
ee-yearperiodbegi nni ng
Januar y1,2011.AtDecember31, 2011noneoft heexecut iveshadexer cisedt hei ropt i
ons.
Whati sthei mpactonGonzal ez’ snetincomef orthey earendedDecember31, 2011asa
resultofthist r
ansact ionundert hefairvaluemet hod?
a.$250, 000i ncrease.
b.$750, 000decr ease.
c. $250, 000decr ease.
d.$0.
72. OnJanuar y1, 2011ReeseCompanygr antedJackBuchanan, anempl oyee,anopt iont o
buy100shar esofReeseCo.shar esfor$40pershar e,theoptionexercisablefor5y ears
from dateofgr ant.Usi ngafairv alueoptionpr icingmodel ,
totalcompensat i
onexpensei s
determinedt obe$1, 200.Buchananexer cisedhi sopt i
ononSept ember1, 2011, andsol d
his100shar esonDecember1, 2011.Quot edmar ketpricesofReeseCo.shar esdur ing
2011wer e:
Januar y1 $40pershar e
September1 $48pershar e
December1 $54pershar e
Theser vi
ceperiodi
sfort
woy earsbeginni
ngJanuary1,2011.Asar esultoft
heopt
ion
grant
edt oBuchanan,usi
ngthefairv
aluemethod,Reeseshouldrecognizecompensat
ion
expensef or2011onit
sbooksintheamountof
a.$0.
b.$600.
c. $1,200
d.$1, 400

73. OnJune30, 2010,YangCor porationgrantedcompensatoryshar


eopt i
onsfor20,000
sharesofits$24parv al
ueordinar ysharestocer
tai
nofitskeyempl oyees.Themar ket
pri
ceoft heordinarysharesont hatdat ewas$31pershareandt heopt i
onpricewas$28.
Usingaf ai
rvalueopt i
onprici
ngmodel ,tot
alcompensati
onexpensei sdeterminedt obe
$64,000.Theopt i
onsar eexercisablebeginni
ngJanuary1,2012,providi
ngthosekey
empl oy
eesar estil
lintheempl oyoft hecompanyatthetimetheopt ionsareexercised.
Theopt i
onsexpi r
eonJune30, 2013.
Di
l
uti
veSecur
it
iesandEar
ni e 16-21
ngsperShar

OnJanuar y4,2012,whent hemarketpri


ceoftheshareswas$36pershare,all
opti
onsf or
the20,000shareswer eexerci
sed.Theservi
ceperi
odisfort
woy earsbegi
nni
ngJanuar y1,
2010.Usingthefairval
uemet hod,whatshouldbetheamountofcompensationexpense
recor
dedbyYangCor porati
onfortheseopti
onsonDecember31, 2010?
a.$64, 000
b.$32, 000
c. $15,000
d.$0

74. I
nor dertoret
aincer
tainkeyexecut
ives,Smil
eyCorpor
ati
ongrant
edthem i
ncent
iveshar
e
opti
onsonDecember31, 2009.80,
000optionsweregr
antedatanopti
onpri
ceof$35
pershare.Marketpr
icesoftheshareswereasfoll
ows:
December31, 2010 $46pershar
e
December31, 2011 51pershar
e
Theoptionswer egrantedascompensat i
onforexecut
ives’ser
vicestober ender
edov
erat wo-
yearperiodbeginningJanuary1,2010.TheBlack-
Scholesopt i
onpri
cingmodel
determinestotalcompensationexpensetobe$800,000.Whatamountofcompensat ion
expenseshoul dSmi l
eyrecogni
zeasar esul
tofthi
spl anfortheyearendedDecember31,
2010undert hef ai
rval
uemet hod?
a.$1, 400,000.
b.$880, 000.
c. $800,000.
d.$400, 000.

75. OnJanuar y1, 2011,Ri


tterCompanygr antedshareoptionstoof f
icersandkeyemployees
forthepur chaseof10,000or di
naryshar esofthecompany '
s$1parat$20pershar eas
additi
onalcompensat i
onf orservicest o berenderedov ert henextt hreeyear
s.The
opti
onsar eexer ci
sabl
edur ingaf i
v e-
yearperi
odbegi nningJanuar y1,2014bygrantees
sti
llempl oyed by Rit
ter.The Bl ack-Scholes opti
on pr i
cing modeldet ermi
nes total
compensat ionexpenset obe$90, 000.Themar ketpri
ceofor dinaryshareswas$26per
shareatthedat eofgrant .Thejournalentrytorecordthecompensat i
onexpenserel
ated
totheseopt i
onsfor2011woul di ncludeacr edittotheShar ePr emium—ShareOptions
accountfor
a.$0.
b.$18, 000.
c. $20,000.
d.$30, 000.

76. OnJanuar y1,2011,EvansCompanygr ant edTim Telfer,anempl oyee,anoptiontobuy


1,
000or di
narysharesofEvansCo.for$25pershar e,theopt i
onexercisablef
or5y ears
fr
om dateofgrant.Usi
ngaf ai
rval
ueopt i
onpr i
cingmodel ,t
otalcompensationexpenseis
deter
minedtobe$7, 500.Telf
erexer
cisedhi soptiononSept ember1,2011,andsol dhis
1,
000shar esonDecember1,2011.Quot edmar ketpr icesofEv ansCo.shar esduring
2011wer e
January1 $25pershar e
September1 $30pershar e
December1 $34pershar e
Theservi
ceperi
odisf
orthr
eeyear
sbegi
nningJanuary1,2011.Asar esul
toft
heoption
grant
edtoTelfer
,usi
ngthefai
rvaluemethod,Evansshouldrecognizecompensat
ion
expensef
or2011onit
sbooksi
ntheamountof
16-22 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

a.$9,000.
b.$7,500.
c. $2,
500.
d.$1,500.

77. OnDecember31,2010,Kessl erCompanygr antedsomeofi t


sexecut i
vesoptionst o
purchase50,000shar esoft hecompany '
s$10paror dinarysharesatanopt i
onpr i
ceof
$50 pershar e.Theopt ionsbecomeexer cisableon Januar y1,2011,and r epresent
compensat i
onf orexecutives'servi
cesoverathree-y
earper i
odbeginningJanuar
y1, 2011.
TheBl ack-
Schol esopt i
onpr ici
ngmodeldet erminest otalcompensat i
onexpenset obe
$300,000.AtDecember31,2011,noneoft heexecut i
veshadex er
cisedthei
ropt i
ons.
Whati stheimpactonKessl er'
snetincomef orthey earendedDecember31,2011asa
resul
tofthistransact i
onundert hefai
rval
uemet hod?
a.$100, 000incr ease
b.$0
c. $100,000decr ease
d.$300, 000decr ease

78. WeiserCorp.onJanuary1,2009,gr antedshareopt


ionsf or40,000sharesofi t
s$10par
val
ueor di
nar
ysharestoitskeyempl oyees.Themarketpriceofthesharesont hatdatewas
$23pershar eandt heopt i
onpr i
cewas$20.TheBl ack-Scholesopt i
onpr i
ci
ngmodel
determi
nest ot
alcompensat ion expenset o be$240,000.Theopt ionsar eex erci
sabl
e
beginni
ngJanuary1,2012,providedthosekeyemployeesar esti
lli
nWei ser’
semployatthe
ti
met heopti
onsareexerci
sed. Theoptionsexpir
eonJanuar y1,2013.
OnJanuary1,2012,whenthemarketpri
ceoftheshareswas$29pershare,all40,000
opti
onswereexerci
sed.Theamountofcompensat
ionexpenseWei
sershoul
dr ecordfor
2011underthef
airval
uemethodi
s
a.$0.
b.$40,000.
c. $80,
000.
d.$120,000.

79. OnDecember31,2010,HouserCompanygr anted someofi tsex ecut


ivesopt i
onst o
purchase45,000shar esoft hecompany '
s$50paror di
narysharesatanopt ionpriceof$60
pershare.TheBl ack-Schol
esopt i
onpri
cingmodeldet erminestotalcompensat i
onex pense
to be$900, 000.Theopt ionsbecomeex erci
sableon Januar y1,2011,and r epr
esent
compensat i
onf orex ecut
ives'pastandf utur
eser vi
cesov erat hree-
yearper i
odbeginning
January1,2011.Whati sthei mpactonHouser 'stotalequit
yforthey earendedDecember
31,2010,asar esultofthi
st ransacti
onunderthefairval
uemet hod?
a.$900, 000decr ease
b.$300, 000decr ease
c. $0
d.$300, 000increase

80. OnJune30,2008,Nor manCor porat


iongrantedcompensat or
yshareoptionsfor30,
000
sharesofi t
s$20parv alueordi
narysharest ocert
ainofitskeyemployees.Themar ket
priceoft heshar
esont hatdatewas$36pershar eandtheoptionpri
cewas$30.The
Black-Schol
es opti
on prici
ng modeldet ermines tot
alcompensati
on expense to be
$360,000.Theopt i
onsar eexerci
sablebeginningJanuar
y1,2011,pr ovidedthosekey
empl oyeesarest
il
linNorman’semployatt heti
met heopt
ionsareexer
cised.Theopti
ons
Di
l
uti
veSecur
it
iesandEar
ni e 16-23
ngsperShar

expi
reonJune30,
2012.
OnJanuary4,2011,whenthemar ketpri
ceoftheshar
eswas$42pershar e,al
l30,
000
opt
ionswereexerci
sed.Whatshouldbetheamountofcompensati
onexpenserecor
ded
byNormanCorporat
ionfort
hecalendary
ear2010usi
ngthef
airv
aluemethod?
a.$0.
b.$144,000.
c. $180,
000.
d.$360,000.

81. Inordert
or et
aincert
ainkeyexecut
ives,
JensenCorpor
ati
ongrant
edthem i
ncent
iveshar
e
opti
onsonDecember31, 2009.50,
000opti
onsweregrantedatanopt
ionpri
ceof$35per
shar
e.Mar ketpri
cesoftheshareswereasfol
lows:
December31,
2010 $46pershar
e
December31,
2011 51pershar
e
Theopt i
onswer egrantedascompensat i
onforexecut
ives'ser
vicestoberenderedov
era
two-yearperiod beginni
ng January1,2010.TheBl ack-Scholesopt i
on pr
ici
ng model
deter
mi nestotalcompensationexpensetobe$500,000.Whatamountofcompensat ion
expenseshoul dJensenrecognizeasaresul
tofthi
splanforthey earended
December31, 2010underthefairv
aluemethod?
a.$250, 000.
b.$500, 000.
c. $550,000.
d.$1, 750,
000.

82. Grant,Inc.had40, 000treasuryshares($10parv alue)atDecember31,2010,whi chit


acquiredat$11pershar e.OnJune4,2011,Gr antissued20, 000treasurysharesto
employ eeswhoex erci
sedopt ionsunderGrant'
sempl oy eeshareopt i
onpl an.Thefair
val
uepershar ewas$13atDecember31, 2010,$15atJune4, 2011,and$18atDecember
31,2011.Theshar eoptionshadbeengr antedf
or$12pershar e.Thecostmet hodisused.
Whati st hebalanceoft hetreasur
ysharesonGr ant'sstatementoff i
nancialposi
ti
onat
December31, 2011?
a.$140, 000.
b.$180, 000.
c. $220, 000.
d.$240, 000.

83. OnJanuary1,2011(thedateofgrant),Henr
ikCo.issues2,000shar
esofr
estr
ict
edshares
toi
tsexecuti
ves.Thef ai
rval
ueoftheseshar esi
s$75, 000,andt
hei
rparv
alueis$10,
000.
Thesharesarefor
fei
tediftheexecuti
vesdonotcompl et
e3y ear
sofempl
oymentwiththe
company.Assumingt heservi
ceper i
odisthreeyears,howmuchcompensationexpense
wil
lHenri
kCo.recordonJanuar y1,2011?
a.$25,000.
b.$-0-
c. $3,
333.
d.$21,667.

84. AnazaziCo.offer
sal li
ts10,
000employeestheopport
unit
ytopar ti
cipatei
nanemployee
shar
e-purchaseplan.Underthet
ermsoft heplan,
theemployeesareent i
tl
edt
opurchase
100ordinaryshar
es( parval
ue$1pershare)ata20percentdiscount.Thepur
chasepri
ce
16-24 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

mustbepai di
mmedi atel
yuponaccept anceoft heoffer
.Intotal
,8,
500employeesaccept
theoff
er,andeachempl oyeepurchasesonav erage80shar esat$22shar
e( marketpr
ice
$27.
50).UnderIFRS,AnazaziCo.wil
lrecord
a.Nocompensat i
onsincetheplanisusedt oraisecapi
tal,
notcompensat
eempl oyees.
b.Compensat i
onexpenseof$5, 500,000.
c. Compensati
onexpenseof$18, 700,000.
d.Compensat i
onexpenseof$3, 740,000.

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions85t
hrough87.

OnJanuary1,2010,Korsak,I
nc.est
abli
shedashar eappr
eciationri
ght
splanforit
sexecuti
ves.I
t
ent
it
ledthem t
orecei
vecashatanyt i
medur i
ngt henextf
oury earsf
orthedi
ff
erencebetweenthe
marketpri
ceofitsordi
narysharesandapr e-establ
i
shedpriceof$20on60, 000SARs.Cur r
ent
marketpri
cesofthesharesareasfol
lows:
Januar
y1,2010 $35pershar
e
December31,2010 38pershar
e
December31,2011 30pershar
e
December31,2012 33pershar
e

Compensati
onexpenser
elat
ingt
othepl
ani
stober
ecor
dedov
eraf
our
-yearper
iodbegi
nni
ng
Januar
y1,2010.

*
85. Whatamountofcompensat
ionexpenseshoul
dKor
sakr
ecogni
zef
ort
hey
earended
December31,2010?
a.$180,000
b.$270,000
c. $225,
000
d.$1,080,
000

*
86. Whatamountofcompensat
ionexpenseshoul
dKor
sakr
ecogni
zef
ort
hey
earended
December31,2011?
a.$0
b.$30,000
c. $300,
000
d.$150,000

*
87. On December31,2012,16,000 SARsareexer
cised byexecutiv
es.Whatamountof
compensati
onexpenseshoul
dKorsakr
ecogni
zef
orthey earendedDecember31,
2012?
a.$285,000
b.$195,000
c. $585,
000
d.$78,000

Mul
ti
pleChoi
ceAnswer
s—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
48. a 54. c 60. b 66. b 72. b 78. c *84. d
49. b 55. a 61. c 67. c 73. b 79. c *85. b
50. a 56. b 62. c 68. b 74. d 80. b *
86. b
51. b 57. d 63. c 69. b 75. d 81. a *
87. a
Di
l
uti
veSecur
it
iesandEar
ni e 16-25
ngsperShar

52. c 58. c 64. c 70. c 76. c 82. c


53. b 59. d 65. b 71. c 77. c *
83. b

MULTI
PLECHOI
CE—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
88. OnJanuar y2,2011,Far rCo.issued10- yearconvert
ibl
ebondsat105.Dur i
ng2013,these
bondswer econv ert
edi ntoor dinaryshareshav i
nganaggr egateparv al
ueequalt othe
tot
alfaceamountoft hebonds.Atconv ersi
on,themar ketpriceofFar r
’sshareswas50
percentabov eitsparv alue.OnJanuar y2,2011,cashpr oceedsfrom theissuanceofthe
converti
blebondsshoul dber eportedas
a.shar ecapitalfortheent i
repr oceeds.
b.shar epr emium fort hepor ti
onoft hepr oceedsatt
ri
but abl
et otheconv er
sionfeat
ure
andasal i
abili
tyforthebal ance.
c. aliabi
li
tyfortheent ir
epr oceeds.
d.al iabil
it
yf orthepresentv al
ueoft hebondsandshar epremium fortheamountov er
thebondspr esentv alue.

89. LangCo.i ssuedbondswi t


hdet achabl
eordinar
ysharewar
rant
s.Onlythebondshada
knownf ai
rv al
ue.Thecashpr oceedsexceedthefai
rval
ueofthebonds.Thi
sexcessi
s
repor
tedas
a.Shar ePremium—ShareWar r
ants.
b.Shar ePremium—Ordinary.
c. BondsPay abl
e.
d.Shar ePremium—Conv er
sionEquity.

90. OnJanuar y1,2010,


SharpCorp.grant
edanempl oy
eeanopt i
ont opurchase6,000shares
ofSharp'
s$5parv al
ueordinar
ysharesat$20pershare.TheBlack-
Scholesopt i
onpri
cing
modeldet erminestot
alcompensat i
on expenseto be$140,000.Theopt ion became
exer
cisableonDecember31,2011,af tert
heemployeecompl et
edt woy ear
sofser vi
ce.
Themar ketpri
cesofShar
p'sshareswereasf ol
l
ows:
Januar
y1,2010 $30
December31,2011 50
For2011,shoul
drecogni
zecompensat
ionexpenseundert
hef
airv
aluemet
hodof
a.$90,000.
b.$30,000.
c. $70,
000.
d.$0.

*
81. OnJanuar y2,2012,f orpastser vi
ces,RosenCor p.grantedNennPi ne,itspresi
dent,
16,
000shar eappreciati
onr i
ghtsthatar
eexercisableimmedi at
elyandexpir
eon
January2, 2013.Onexer ci
se,Nennisenti
tl
edtor eceivecashfortheexcessofthemar ket
pri
ceoft heshar esont heexer ci
sedateoverthemar ketpri
ceont hegr
antdate.Nenndi d
notexerciseanyoft her i
ghtsduring2010.Themar ketpr i
ceofRosen'sshareswas$30on
January2,2012,and$45onDecember31,2012.Asar esul
toft heshareappreci
ati
on
ri
ghts,
Rosenshoul dr ecogniz
ecompensat i
onexpensef or2012of
a.$0.
b.$80, 000.
c. $240,000.
d.$480, 000.
16-26 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

Mul
ti
pleChoi
ceAnswer
s—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
88. d 89. a 90. c *
91. c
MULTI
PLECHOI
CE—Ear
ningsPerShar
e—Concept
ual
92. Wit
hr espectt othecomput ati
onofear ningspershare,whichofthefol
lowi
ngwoul
dbe
mostindicativeofasi mpl ecapitalst
ructure?
a.Or dinaryshar es,preferenceshar es,andconverti
blesecur
it
iesout
standi
ngi
nlot
sof
ev
ent housands
b.Ear ningsder i
vedf r
om onepr imar
yl i
neofbusiness
c. Owner shipinterestconsisti
ngsolelyofor di
nar
yshares
d.Noneoft hese

93. Incomput ingearningspershar eforasi mpl


ecapi t
alstr
ucture,ifthepreferenceshar
es
arecumul ati
ve,theamountt hatshouldbededuct edasanadj ustmenttot henumerat
or
(ear
nings)isthe
a.pr efer
encedi vi
dendsinarrears.
b.pr efer
encedi vi
dendsinarrearsti
mes( oneminustheincomet axrat
e).
c. annual pr
eferencedi
videndtimes( oneminustheincomet axrate).
d.noneoft hese.

94. Incomput at
ionsofwei ghtedav er
ageofsharesout st
andi
ng,whenashar
edi
vi
dendor
stockspli
toccur
s,theadditional
sharesare
a.wei ghtedbythenumberofday soutst
andi
ng.
b.wei ghtedbythenumberofmont hsoutst
anding.
c. consider
edoutstandingatthebeginni
ngoftheyear.
d.consi der
edoutstandingatthebeginni
ngoftheearli
esty
earr
eport
ed.

95. Whatef fectwil


ltheacquisit
ion oft
reasur
yshar
eshav
eon shar
ehol
der
s'equi
tyand
ear
ningspershare,r
espect
ivel
y ?
a.Decr easeandnoeffect
b.Increaseandnoef f
ect
c. Decreaseandincr
ease
d.Increaseanddecrease
S
96. Duetotheimport
anceofearni
ngspershar
einf
ormat
ion,
iti
srequi
redt
ober
epor
tedbyal
l
Publ
icCompanies Nonpubl
i
cCompanies
a. Yes Yes
b. Yes No
c. No No
d. No Yes
P
97. Aconver
ti
blebondi
ssueshouldbei
ncl
udedinthedi
l
utedearni
ngspersharecomput
ati
on
asi
fthebondshadbeenconvert
edi
ntoor
dinar
yshar
es,i
ftheeffectofi
tsi
ncl
usi
onis
Di
lut
ive Ant
idi
l
uti
ve
a. Yes Yes
b. Yes No
c. No Yes
d. No No
Di
l
uti
veSecur
it
iesandEar
ni e 16-27
ngsperShar

98. Whencomput ingdil


utedear ningspershare, convert
ibl
ebondsar e
a.ignor ed.
b.assumedconv ert
edwhet hertheyaredilutiv
eorantidi
l
utive.
c. assumedconv ert
edonl yiftheyareantidiluti
ve.
d.assumedconv ert
edonl yiftheyaredil
utiv e.
99. Di
luti
veconv erti
blesecuri
tiesmustbeusedi nthecomput at
ionof
a.basi cearningspershar eonl y
.
b.di l
utedearningspershar eonl y.
c. dil
utedandbasi cearningspershar e.
d.noneoft hese.

100. In comput ing earni


ngs pershare,the equivalentnumberofshar es ofconver
ti
ble
preferencesharesar eaddedasanadj ustmentt othedenomi nat
or(numberofshares
outstanding).I
ft hepref
erencesharesar ecumul at
ive,whi
chamountshoul dthenbe
addedasanadj ustmentt
ot henumerator(netearni
ngs)?
a.Annual pref
erencediv
idend
b.Annual pref
erencediv
idendti
mes( onemi nustheincomet axrat
e)
c. Annual pref
erencediv
idendti
mest heincomet axrate
d.Annual pref
erencediv
idenddiv
idedbyt heincomet axrat
e

101. Inthedi l
utedear ni
ngspershar ecomput ati
on,t hetreasur yshar emet hodisusedf or
opti
onsandwar rantst oreflectassumedr eacquisit
ionofor dinarysharesatt heaverage
marketpricedur i
ngt heperi
od.I ft
heexercisepriceoftheopt ionsorwar rantsexceedsthe
averagemar ketpr i
ce, thecomput ati
onwoul d
a.f air
lypresentdi l
ut edearningspershareonapr ospectivebasi s.
b.f air
lypr esentt hemaxi mum pot enti
aldi l
uti
onofdi l
utedear ni
ngspershar eona
prospect iv
ebasi s.
c. refl
ecttheexcessoft henumberofshar esassumedi ssuedov erthenumberofshar es
assumedr eacqui redasthepot enti
aldi
luti
onofear ningspershar e.
d.beant i
dilutive.

102. Inapplyi
ngthet r
easurysharemethodt odeter mi
net hedi l
uti
veef fectofshareopt i
ons
andwar r
ants,theproceedsassumedt ober ecei
veduponexer ciseoft heopt ionsand
warrant
s
a.ar eusedt ocalculatethenumberofor dinar
yshar esr epurchasedatt heav er
age
marketpri
ce,whencomput i
ngdil
utedearningspershar e.
b.ar eadded,netoftax,t
othenumeratorofthecalculati
onfordil
ut edearningspershare.
c. aredisr
egardedint hecomput
ati
onofear ningspershar eiftheexer cisepriceofthe
opti
onsandwar rantsisl
esst
hantheendingmar ketpri
ceofor dinaryshares.
d.noneoft hese.

103. Whenapplyingthetreasur
ysharemet hodf ordi
lutedear
ningspershar
e,t
hemar
ketpr
ice
oft
heor di
narysharesusedfortherepurchaseisthe
a.priceattheendoft heyear.
b.averagemar ketpri
ce.
c. pr
iceatthebeginningoftheyear.
d.noneoft hese.

104. Ant
idi
l
uti
vesecuri
ti
es
a.shoul
dbei ncl
udedi
nthecomput
ati
onofdi
l
utedear
ningspershar
ebutnotbasi
c
16-28 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

earningspershare.
b.ar et hosewhosei nclusi
oninear ni
ngspersharecomputat
ionswouldcausebasi
c
earningspersharetoexceeddil
utedearni
ngspershar
e.
c. i
ncludeshar eopt i
onsandwar rantswhoseexerci
sepricei
sl esst
hantheaver
age
mar ketpr
iceofordinaryshar
es.
d.shoul dbei gnor
edinallearni
ngspersharecal
cul
ati
ons.

*
105.Assumet her
earetwodi l
uti
veconv er
ti
blesecur
it
ies.Theonet
hatshoul
dbeusedf
ir
stt
o
recal
culateearni
ngspershareisthesecuri
tywit
ht he
a.gr eaterearni
ngsadj
ustment.
b.gr eaterearni
ngspershareadjustment.
c. smal l
erearni
ngsadjust
ment .
d.smal l
erearni
ngspershareadjustment.

Mul
ti
pleChoi
ceAnswer
s—Ear
ningsPerShar
e—Concept
ual
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
92. c 94. d 96. b 98. d 100. a 102. a 104. d
93. d 95. c 97. b 99. b 101. d 103. b *
10 d
5.
Sol
uti
ont
oMul
ti
pleChoi
cequest
ionf
orwhi
cht
heansweri
s“noneoft
hese.

93. annual
pref
err
eddi
vi
dend.
Di
l
uti
veSecur
it
iesandEar
ni e 16-29
ngsperShar

MULTI
PLECHOI
CE—Ear
ningsPerShar
e—Comput
ati
onal
106. Hil
lCorp.had600,000ordi
narysharesoutst
andi
ngonJanuary1,issued900,
000shares
onJuly1,andhadi ncomeappli
cabl
etocommonst ockof$1,
050,000fortheyearendi
ng
December31,2012.Earni
ngspershareofordi
nar
yshar
esfor2012woul dbe
a.$1.75.
b.$.83.
c. $1.
00.
d.$1.17.

97. AtDecember31,2012,HancockCompanyhad 500, 000 or di


nar
yshar esi ssued and
outstandi
ng,400,
000ofwhi chhadbeenissuedandout
standingthroughoutthey earand
100,000 ofwhich werei ssued on Oct
ober1,2012.Neti ncomef orthey earended
December31, 2012,was$1, 020,
000.Whatshoul
dbeHancock' s2012earningspershar e,
roundedtothenearestpenny ?
a.$2. 02
b.$2. 55
c. $2.40
d.$2. 27

108. MiloCo.had600,000ordi
nar
ysharesoutstandi
ngonJanuary1,i
ssued126,
000shareson
May1,pur chased63,
000sharesoftreasuryshar
esonSept ember1,andissued54,
000
sharesonNov ember1.Thewei
ght
edav erageshar
esoutst
andingfort
heyearis
a.651,000.
b.672,000.
c. 693,
000.
d.714,000.

109. OnJanuary1,2011,Gr idl


eyCorpor
ationhad125,
000shar esofits$2parv al
ueordinar
y
sharesout
standing.OnMar ch1,Gridleysol
danaddit
ional250,000sharesont heopen
marketat$20pershar e.Gr
idl
eyissueda20% sharedividendonMay1.OnAugust1,
Gri
dleypurchased140,000sharesandi mmediat
elyr
etir
edt heshares.OnNov ember1,
200,
000shar eswer esoldfor$25pershar e.Whati
st hewei ght
ed-aver
agenumberof
sharesout
standingfor2011?
a.510,000
b.375,000
c. 358,
333
d.258,333

110. Thef
oll
owi
ngi
nfor
mat
ioni
sav
ail
abl
eforBar
oneCor
por
ati
on:
January1,2011 Sharesout
standi
ng 1,
250,
000
Apri
l1,2011 Sharesi
ssued 200,
000
Jul
y1, 2011 Treasur
ysharespur
chased 75,
000
October1,2011 Sharesi
ssuedina100%stockdi
vi
dend 1,
375,
000
Thenumberofshar
est
obeusedi
ncomput
ingear
ningsperor
dinar
yshar
efor2011i
s
a.2,825,
500.
b.2,737,
500.
c. 2,
725,
000.
d.1,706,
250.
16-30 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

111. AtDecember31,2010Ri ceCompanyhad300, 000or di


narysharesand10,
000sharesof
5%,$100 parv al
ue cumulativ
e pr eference shares outstandi
ng.No di
vidends wer
e
declaredonei thert
heprefer
enceoror dinarysharesin2010or2011.OnJanuary30,2012,
priortot heissuanceofitsfinancialstat ement
sf ortheyearendedDecember31,2011,
Ricedecl areda100% shar edi vi
dendoni tsordi
naryshares.Netincomefor2011was
$950,000.Inits2011financi
al st
atement s,Ri
ce'
s2011ear ningspershar
eshouldbe
a.$1. 50.
b.$1. 58.
c. $3. 00.
d.$3. 17.

112. Ful
tzCompanyhad300, 000or dinarysharesi ssuedandout st
andi
ngatDecember31,
2010.Duri
ng2011,noaddi t
ionalor di
naryshar eswer eissued.OnJanuary1,2011,Ful t
z
i
ssued400,000sharesofnonconv ert
iblepreferenceshar es.Duri
ng2011,Fultzdeclar
ed
and pai
d $180,000 cash dividends on t he or dinar
y shares and $150,000 on the
nonconver
ti
blepref
erenceshares.Neti ncomef ort heyearendedDecember31, 2011,was
$960,
000.WhatshouldbeFul t
z's2011ear ningspershar e,roundedtothenearestpenny?
a.$1.16
b.$2.10
c. $2.
70
d.$3.20

113. AtDecember31, 2010Pi neCompanyhad200, 000or di


narysharesand10, 000shar
esof
4%,$100parv aluecumul ati
vepref er
enceshar esout st
anding.Nodi v
idendswere
decl
aredoneithert hepref er
enceoror di
naryshar esin2010or2011.OnFebr uar
y10,
2012,pri
ortothei ssuanceofi tsfinancialstatement sforthey earendedDecember31,
2011,Pinedeclareda100%st ocksplitoni t
sor dinar
yshares.Netincomef or2011was
$720,
000.Inits2011f inancial st
atement s,Pine’ s2011earningspershar eshoul
dbe
a.$3. 40.
b.$3. 20.
c. $1.70.
d.$1. 00.

114. Sti
neI nc.had300,000or di
naryshar
esissuedandoutstandingatDecember31, 2010.On
Jul
y1, 2011anadditional300,
000shar
eswer eissuedforcash.Sti
nealsohadshar e
optionsoutstandi
ngatt hebeginni
ngandendof2011whi chall
owt heholder
stopurchase
90,
000or di
narysharesat$28pershare.Theaveragemar ketpri
ceofStine’
sordinar
y
shareswas$35dur i
ng2011.Thenumberofshar estobeusedi ncomput i
ngdil
uted
earningspersharefor2011i s
a.672, 000
b.618, 000
c. 522, 000
d.468, 000
Di
l
uti
veSecur
it
iesandEar
ni e 16-31
ngsperShar

115. Kasr aviCo.hadneti ncomef or2011of$300, 000.Theaveragenumberofshares


outst andingf ortheperiodwas200,000shar es.Theaveragenumberofsharesunder
outst andingopt i
ons,atanopt i
onpriceof$30pershar eis12,000shar
es.Theaverage
mar ketpr iceoft heordinar
ysharesduringthey earwas$36.WhatshouldKasraviCo.
repor tfordilutedearningspersharefortheyearended2011?
a.$1. 50
b.$1. 49
c. $1. 43
d.$1. 42

116. OnJanuary2,2011,WorthCo.issuedatpar$2, 000,


000of7%conv ert
ibl
ebonds.Each
$1,
000bondisconv er
ti
blei
nto10or di
naryshares.Nobondswereconv er
tedduri
ng2011.
Worthhad200,000ordi
narysharesout st
andingduring2011.Wort
h’s2011netincome
was$600,000andtheincomet axratewas30%.Wor t
h’sdi
l
utedearni
ngspersharefor
2011wouldbe( r
oundedtothenear estpenny):
a.$3.49.
b.$3.17.
c. $3.
00.
d.$3.36.

117. BeatyInc.purchasedDunbarCo.andagr eedtogivesharehol


der
sofDunbarCo.10,000
addi
tionalsharesin2012ifDunbarCo. ’
snetincomein2011is$500,
000; i
n2010Dunbar
Co.’
sneti ncomeis$520,000.BeatyInc.hasnetincomefor2010of$200,000andhasan
aver
agenumberofor dinar
ysharesout st
andi
ngf or2010of100,
000shares.Whatshoul
d
Beatyreportasdilut
edearningspersharefor2010?
a.$2. 22
b.$2. 00
c. $1.82
d.$1. 67

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions118and119.

HansonCo.had200, 000or di
naryshar es,20,000shar esofconvert
ibl
epreferenceshares,
and
$1,
000,000of10%conv er
tibl
ebondsout standingduring2011.Thepr ef
erencesharesare
conver
tiblei
nto40,000or dinar
yshar es.Dur i
ng2011, Hansonpai ddiv
idendsof$1.20pershare
ontheor di
narysharesand$4pershar eont hepr ef
erenceshares.Each$1,000bondi s
conver
tiblei
nto45or dinaryshares.Theneti ncomef or2011was$800, 000andt heincometax
rat
ewas30%.

118. Basicearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 94.
b.$3. 22.
c. $3.35.
d.$3. 60.

119. Di
lutedearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 77.
b.$2. 81.
c. $3.05.
d.$3. 33.
16-32 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-33
ngsperShar

120. FugateCompanyhad500, 000ordinar


yshar esissuedandout st
andi
ngatDecember31,
2010.OnJul y1,2011anaddi ti
onal500,
000shar eswereissuedforcash.Fugateal
sohad
shareoptionsoutstandingatthebeginningandendof2011whi chall
ow t hehol
dersto
purchase150,000or di
narysharesat$20pershar e.TheaveragemarketpriceofFugate'
s
ordinar
yshareswas$25dur i
ng2011.Whati sthenumberofshar esthatshouldbeused
i
ncomput i
ngdil
utedear ni
ngspersharefortheyearendedDecember31, 2011?
a.1, 030,
000
b.870, 000
c. 787,500
d.780, 000

121. ShipleyCorporati
onhadneti ncomef ort heyearof$480, 000andawei ghtedaver
age
numberofor dinar
ysharesout st
andingdur i
ngtheperiodof200,000shares.Thecompany
hasaconv er
ti
blebondi ssueout st
anding.Thebondswer ei ssuedfouryearsagoatpar
($2,000,
000),carrya 7% i nter
estr at
e,and ar e conver
ti
blei nt
o 40,
000 shares.The
companyhasa40%t axr ate.Dil
utedearningspershareare
a.$1. 65
b.$2. 23.
c. $2.35.
d.$2. 58.

122. Col
tCorpor
ati
onpur chasedMasseyI nc.andagr eedtogi
vesharehol
dersofMasseyI nc.
50,
000addi
ti
onalsharesin2012ifMasseyI nc.’
snetincomein2011is$400,000ormor e;
i
n2010MasseyI nc.’
snetincomei s$410,000.Colthasneti
ncomef or2010of$800,000
andhasanaveragenumberofor dinar
yshar esoutst
andi
ngfor2010of500, 000shares.
Whatshoul
dColtreportasearni
ngspershar efor2010?
Basi
cEarni
ngs Di
l
utedEarni
ngs
PerShar
e PerShare
a. $1.
60 $1.
60
b. $1.
45 $1.
60
c. $1.
60 $1.
45
d. $1.
45 $1.
45

123. OnJanuar y2,2012,PerezCo.issuedatpar$10,000of6%bondsconv ert


ibleintotali
nto
1,
000or di
narysharesofPerez'
s.Nobondswer econvert
eddur i
ng2012.Thr oughout2012,
Perezhad1,000or di
nar
ysharesofout st
anding.Perez'
s2012neti ncomewas$3, 000,and
i
tsincomet axr ateis30%.Nopot enti
all
ydil
uti
v esecurit
iesotherthant heconv ert
ibl
e
bondswer eoutstandi
ngduring2012.Per ez'
sdilut
edear ni
ngspershar efor2012woul d
be(roundedtothenearestpenny)
a.$1. 50.
b.$1. 71.
c. $1.80.
d.$3. 42.
16-34 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

124. AtDecember31,2010,Ki ferCompanyhad500, 000or dinar


yshar esoutst
anding.On
October1, 2011, anadditi
onal100,000ordi
naryshareswer eissued.Inaddi
ti
on,Kiferhad
$10,000,
000 of6% conv ert
iblebondsout st
anding atDecember31,2010,whi ch are
converti
blei nt
o225, 000or dinar
yshares.Nobondswer econv ertedin2011.Thenet
i
ncomef orthey earendedDecember31, 2011, was$3,000,000.Assumingtheincomet ax
rat
ewas30%,t hedilutedear ni
ngspersharef orthey earendedDecember31,2011,
shouldbe( roundedtot henearestpenny)
a.$6. 52.
b.$4. 80.
c. $4.56.
d.$4. 00.

125. OnJanuary2,2011,Mi zeCo.i ssuedatpar$300, 000of9% conv er


ti
blebonds.Each
$1,
000bondisconvert
ibl
eint
o30or dinaryshar
es.Nobondswereconvert
edduri
ng2011.
Mizehad50,
000ordinarysharesout standi
ngduri
ng2011.Mize's2011netincomewas
$160,
000andtheincomet axr at
ewas30%.Mi ze'
sdil
utedear
ningspersharefor2011
wouldbe(
roundedt
ot henearestpenny )
a.$2.71.
b.$3.03.
c. $3.
20.
d.$3.58.

126. AtDecember31,2010,SagerCo.had1, 200,


000ordi
narysharesoutstandi
ng.Inaddi
ti
on,
Sagerhad450, 000shar esofpr ef
erenceshareswhichwer econv ert
ibl
einto750,
000
ordi
naryshar
es.Dur i
ng2011,Sagerpaid$600,000ordi
narycashdivi
dendsand$400,000
pref
erencecashdividends.Neti
ncomef or2011was$3,400,000andt heincometaxrate
was40%.Thedi lut
edear ni
ngspersharefor2011i
s(r
oundedt othenearestpenny)
a.$1. 24.
b.$1. 74.
c. $2.51.
d.$2. 84.

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions127and128.
LernerCo.had200,000ordinar
yshar es,20,000shar esofconvert
ibleprefer
enceshar es,and
$1,
000,000 of10% convert
ibl
e bonds outstanding duri
ng 2011.The preference shares ar
e
convert
ibl
eint
o40,000ordi
naryshares.During2011,Ler nerpai
ddividendsof$. 90peror di
nary
shareand$3.00perpref
erenceshare.Each$1, 000bondi sconvert
ibleint
o45or di
naryshares.
Thenetincomefor2011was$600,000andt hei ncomet axrat
ewas30%.

127. Basicearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 21.
b.$2. 42.
c. $2.51.
d.$2. 70.

128. Di
lutedearni
ngspershar
efor2011i
s(r
oundedt
othenear
estpenny
)
a.$2. 14.
b.$2. 25.
c. $2.35.
d.$2. 46.
Di
l
uti
veSecur
it
iesandEar
ni e 16-35
ngsperShar
16-36 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

129. Yoder,Incorpor
ated,has3,200,000ordi
narysharesoutstandi
ngonDecember31,2010.
Anaddi t
ional800,
000ordinaryshareswereissuedonApr i
l1,2011,and400,000moreon
July1,2011.OnOct ober1,2011,Yoderissued20,000,$1,000facevalue,8%conver
ti
ble
bonds.Eachbondi sconverti
bleint
o20ordinaryshar
es.Nobondswer econv er
tedi
n2011.
Whati st henumberofshar est obeusedi ncomputingbasicearningspershareand
di
lutedear ni
ngspershar
e,respecti
vel
y?
a.4, 000,000and4,000,
000
b.4, 000,000and4,100,
000
c. 4,000,000and4,400,
000
d.4, 400,000and5,200,
000

130. NolteCo.has4,000,
000or di
naryshar esout
standi
ngonDecember31, 2010.Anadditi
onal
200,000sharesar eissuedonApr i
l1,2011,and480, 000mor eonSept ember1.On
October1,Nol teissued $6,000,000 of9% conv er
ti
ble bonds.Each $1,000 bond is
converti
blei
nto40ordinaryshares.Nobondshav ebeenconv er
ted.Thenumberofshar es
tobeusedi ncomput ingbasicear ningspershareanddi lut
edear ni
ngspershar eon
December31, 2011is
a.4, 310,
000and4,310,000.
b.4, 310,
000and4,370,000.
c. 4,310,
000and4,550,000.
d.5, 080,
000and5,320,000.

131. AtDecember31,2010,Tat um Companyhad2, 000,


000or di
narysharesout st
andi
ng.On
January 1,2011,Tat um i ssued 500,
000 shares ofpr ef
erence shares which were
converti
bleinto 1,000,000 ordinar
y shar
es.Dur i
ng 2011,Tat um decl ar
ed and paid
$1,500,
000or di
narycashdi videndsand$500,000prefer
encecashdi vi
dends.Netincome
fortheyearendedDecember31,2011,was$5, 000,000.Assumingani ncomet axrateof
30%,whatshoul dbedi l
utedear ni
ngspershareforthey earendedDecember31,2011?
(Roundtothenear estpenny.)
a.$1. 50
b.$1. 67
c. $2.50
d.$2. 08

132. AtDecember31,2010,Eml eyCompanyhad1, 200,


000ordi
narysharesoutstandi
ng.On
September1,2011,anaddi t
ional400,
000or di
naryshar
eswer ei
ssued.Inadditi
on,Emley
had$12, 000,000of6% converti
blebondsoutstandi
ngatDecember31,2010,whi chare
converti
bleinto800,000ordinaryshares.Nobondswer econvert
edi n2011.Thenet
i
ncomef ortheyearendedDecember31, 2011,was$4,500,
000.Assumingtheincomet ax
rat
ewas30%, whatshoul
dbet hedil
utedearni
ngspersharefort
hey earendedDecember
31,2011, r
oundedtothenearestpenny?
a.$2. 11
b.$3. 38
c. $2.35
d.$2. 45
Di
l
uti
veSecur
it
iesandEar
ni e 16-37
ngsperShar

133. Gri
mm Companyhas1, 800,000ordinarysharesout standi
ngonDecember31,2010.An
additi
onal150,
000ordinaryshareswer eissuedonJul y1,2011,and300, 000moreon
October1,2011.OnApr i
l1,2011,Grimm issued6, 000,$1,
000facevalue,8%conver
ti
ble
bonds.Eachbondisconv er
ti
blei
nto40or dinaryshares.Nobondswereconv ert
edi
n2011.
Whati sthenumberofshar estobeusedi ncomput ingbasi
cearningspershareand
di
lutedearni
ngspershare,r
especti
vely,
forthey earendedDecember31, 2011?
a.1, 950,
000and2,130,
000
b.1, 950,
000and1,950,
000
c. 1,950,
000and2,190,
000
d.2, 250,
000and2,430,
000

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions134and135.
I
nfor
mati
onconcerni
ngthecapital
struct
ureofPi
perCor
porat
ionisasf ol
l
ows:
December31,
2011 2010
Ordi
nar
yShares 150,
000shares150,000shares
Conver
ti
blepref
erenceshares 15,
000shares15,000shares
9%convert
ibl
ebonds $2,
400,
000$2, 400,
000
Duri
ng2011,Piperpaiddividendsof$1. 20peror di
naryshar
eand$3. 00perprefer
enceshar
e.
Theprefer
encesharesareconv erti
bleint
o30,000ordinar
yshares.The9%conv ert
ibl
ebondsare
conver
ti
bleint
o75,000ordinaryshar es.Thenetincomef ort
hey earendedDecember31,2011,
was$600,000.Assumethatt heincomet axrat
ewas30%.

134. Whatshouldbet hebasicearni


ngspershar
efort
hey
earendedDecember31,2011,
roundedtot
henearestpenny
?
a.$2. 66
b.$2. 92
c. $3.70
d.$4. 00

135. Whatshouldbethedil
utedear
ningspershar
efort
hey
earendedDecember31,2011,
roundedtot
henear
estpenny
?
a.$3. 20
b.$2. 95
c. $2.83
d.$2. 35

136. Warrantsexer ci
sabl
eat$20eacht oobtain30,000ordi
naryshareswer eout st
anding
dur
ing a per i
od when t he av
erage mar
ketpr i
ce ofthe ordi
nary shares was $25.
Appli
cationoft hetr
easurysharemethodfortheassumedexerci
seoft hesewar r
antsin
comput i
ngdi l
utedearningspersharewillincr
easethewei ght
edav eragenumberof
out
standi ngsharesby
a.30, 000.
b.24, 000.
c. 6,000.
d.7, 500.
16-38 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

137. Terr
yCor porat
ionhad300,000or di
narysharesout st
andingatDecember31,2012.I n
additi
on,ithad90, 000shareoptionsoutstanding,whichhadbeengr ant
edtocer t
ain
executiv
es, andwhi
chgavethem therightt
opur chaseTerry'
sshar
esatanopt i
onpri
ceof
$37pershar e.Theaver
agemar ketpr i
ceofTer ry'
sordinar
ysharesfor2012was$50.
Whati sthenumberofsharesthatshouldbeusedi ncomput i
ngdil
utedearni
ngspershare
fortheyearendedDecember31, 2012?
a.300, 000
b.331, 622
c. 366,600
d.323, 400

Mul
ti
pleChoi
ceAnswer
s—Ear
ningsPerShar
e—Comput
ati
onal
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
106. c 111. a 116. b 121. c 126. b 131. b 136. c
107. c 112. c 117. c 122. c 127. d 132. c 137. d
108. b 113. c 118. d 123. b 128. c 133. a
109. b 114. d 119. c 124. c 129. b 134. c
110. c 115. b 120. d 125. b 130. b 135. b

MULTI
PLECHOI
CE—Ear
ningsPerShar
e—CPAAdapt
ed
138. DiddeCo.had300, 000or di
narysharesissuedandoutst
andingatDecember31, 2010.No
ordi
naryshar eswer eissueddur i
ng2011.OnJanuar y1,2011,Di ddeissued200,000
shares ofnonconv ert
ibl
e prefer
ence shar es.Duri
ng 2011,Didde decl
ared and pai
d
$100,000cashdi vi
dendsont heor dinar
yshar esand$80,000ont hepref
erenceshares.
Netincomef ortheyearendedDecember31, 2011was$620,000.WhatshouldbeDidde'
s
2011ear ni
ngspershare?
a.$2. 07
b.$1. 80
c. $1.73
d.$1. 47

139. AtDecember31,2011and2010,Mi leyCorp.had180,000ordi


naryshar
esand10,000
sharesof5%,$100parv al
uecumul ati
veprefer
encesharesoutst
andi
ng.Nodivi
dends
weredeclaredoneithert
heprefer
enceoror di
naryshar
esin2011or2010.Neti
ncomefor
2011was$400, 000.For2011,ear
ningspershareamountedto
a.$2. 22.
b.$1. 94.
c. $1.67.
d.$1. 11.
Di
l
uti
veSecur
it
iesandEar
ni e 16-39
ngsperShar

140. Mar shCo.had2, 400,


000or di
narysharesoutstandingonJanuar y1andDecember31,
2011.Inconnectionwiththeacquisi
ti
onofasubsi di
arycompanyi nJune2010,Marshis
requir
edtoissue100,000additi
onalordi
narysharesonJul y1,2012,t
ot hef
ormerowners
oft hesubsidiar
y.Mar sh pai
d $200,000 i
n preferencesharedi vi
dendsin 2011,and
report
edneti ncomeof$3, 400,
000f ortheyear.Mar sh'
sdilutedearni
ngspersharefor
2011shouldbe
a.$1. 42.
b.$1. 36.
c. $1.33.
d.$1. 28.

141. Foyl
e,Inc.
,had560, 000ordi
nar
yshar
esandout standi
ngatDecember31,2010.OnJul y1,
2011,anaddi t
ional40,
000shareswereissuedforcash.Foyl
eal
sohadunexerci
sedshar e
opti
onst opurchase32,000ordi
nar
yshar esat$15pershareout
standi
ngatthebeginning
andendof2011.Theav er
agemarketpr i
ceofFoy l
e'sordi
nar
yshareswas$20dur ing
2011.Whati sthenumberofsharesthatshouldbeusedincomputingdi
lut
edearni
ngsper
sharefortheyearendedDecember31, 2011?
a.580, 000
b.588, 000
c. 608,000
d.612, 000

142. Whencomput ingdil


utedear ni
ngspershare,
convert
ibl
esecur
it
iesar
e
a.ignored.
b.recognizedonlyiftheyaredil
uti
ve.
c. r
ecognizedonlyiftheyareanti
dil
uti
ve.
d.recognizedwhethert heyaredi
lut
iveoranti
dil
uti
ve.

143. In determining di
luted ear
nings pershar e,divi
dends on nonconv
ert
ibl
e cumul
ati
ve
prefer
enceshar esshouldbe
a.di sregarded.
b.addedbackt onetincomewhet herdecl
aredornot.
c. deduct edfrom neti
ncomeonl yifdecl
ared.
d.deduct edfrom neti
ncomewhet herdeclaredornot.

144. Theif-
convert
edmet hodofcomput i
ngear ni
ngspershar edat aassumesconv er
sionof
conver
ti
blesecur
it
iesasoft he
a.beginningoft
heear l
iestperi
odreport
ed( oratt i
meofi ssuance, i
flat
er).
b.beginningoft
heear l
iestperi
odreport
ed( regardlessofti
meofi ssuance).
c. middl
eoftheearli
estperiodrepor
ted(regardlessoftimeofi ssuance).
d.endingoftheearli
estperiodrepor
ted(r
egar dlessoftimeofi ssuance).

Mul
ti
pleChoi
ceAnswer
s—Ear
ningsPerShar
e—CPAAdapt
ed
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
138. b 139. b 140. d 141. b 142. b 143. d 144. a
16-40 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-41
ngsperShar

DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
No. Answer Der
ivat
ion
48. a $800,
000+(
$175,
000×.
32)–(
800×30×$30)=$136,
000.

49. b $60,
000–(
1,200×$45)–$2,
400=$3,
600.

50. a ($2,400,000÷$1,000)×40×$20=$1, 920,


000(ordi
nar
yshares)
($2,
400,
000÷$16, 000,000)×$1,000,000=$150,
000(unamorti
zeddi
scount)
$2,400,000–$1, 920,000–$150,000=$330,000.

51. b $100,
000+$2,
000–(
2,000×$40)=$22,
000.

52. c (
€1,
000,
000×.
70843)+(
€60,
000×3.
23972)=€902,
813

53. b (€1,000,000×.
70843)+(€60,
000×3.
23972)=€902,
813
€1,000,000–€902,813=€97,
817.

54. c (
€1,
000,
000+€97,
187)–(
1,000×250×€1)=€847,
187.

55. a Nogai
norl
ossr
ecor
ded.

56. b €40,
000pay
menti
sdebi
tedt
oConv
ersi
onExpense.

57. d (
₤2,
000,
000×.
99)–₤1,
900,
000=₤80,
000.

58. c €820,
000–(
2,000×€400)=€20,
000dr
.toR/
E.

59. d $6,
180,
000–(
60,
000×3×$25)=$1,
680,
000.

60. b (
$200,
000×.
95)=$190,
000.

61. c (
$800,
000×.
95)=$760,
000;$800,
000×1.
04=$832,
000
$832,
000–$760,
000=$72,
000.

62. c (
$300,
000×.
96)=$288,
000;$300,
000×1.
04=$312,
000
$312,
000–$288,
000=$24,
000.

63. c (2,
000×$1,
008)=$2,
016,
000
$2,
120,
000–$2,
016,
000=$104,
000

64. c ($300,000×.
96)=$288,
000;
$300,000×1.
03=$309,000
$309,000–$288,
000=$21,000.

65. b $300,
000×.
96=$288,
000.
16-42 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion

66. b $205,
000–$180,
000)=$25,
000.

67. c (
$500,
000´.
96)=$480,
000

68. b ($500,000´1.
03)=$15,
000
($500,000´.
96)=$480,
000.
$515,000–$480,000=$35,
000.

69. b $1,
8003=$600.

70. c $9002=$450.

71. c $750,
0003=$250,
000decr
ease.

72. b $1,
2002=$600.

73. b $64,
0002=$32,
000.

74. d $800,
0002=$400,
000.

75. d $90,
000÷3=$30,
000.

76. c $7,
500÷3=$2,
500.

77. c $300,
000÷3=$100,
000.

78. c $240,
000÷3=$80,
000/
year
.

79. c $900,
000– =$300,
000i
ncr
ease(
from t
hecr
edi
ttoPai
d-i
n

Capi
tal
—StockOpti
ons).Off
setby$300,
000decr
ease(
from t
hedebi
tto
Compensati
onExpense).

80. b =$144,
000.

81. a $500,
000÷2=$250,
000.

82. c 20,
000×$11=$220,
000.

83. Nocompensat
ionexpenser
ecor
dedy
et.

84. d [
8,500´80´(
$27.
50–$22)
]=$3,
740,
000.
Di
l
uti
veSecur
it
iesandEar
ni e 16-43
ngsperShar

DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion

*
85. b (
$38–$20)×60,
000×.
25=$270,
000.

*
86. b ($30–$20)×60,
000×.
5=$300,000
$300,
000–$270,
000=$30,
000.

*
87. a ($33–$20)×60,
000×.
75=$585,000
$585,
000–$300,
000=$285,
000.

DERI
VATI
ONS—Di
l
uti
veSecur
it
ies,
CPAAdapt
ed
No. Answer Der
ivat
ion
88. d Concept
ual
.

89. a Concept
ual
.

90. c $140,
000÷2=$70,
000.

*
91. c (
$45–$30)×16,
000=$240,
000.

DERI
VATI
ONS—Ear
ningsPerShar
e,Comput
ati
onal
No. Answer Der
ivat
ion
$1,
050,
000
106. c ————————————=$1.
00.
6
600,
000+(900,
000×—)
12

$1,
020,000
107. c ————————————=$2. 40.
3
400,
000+( 100,000×—-)
12
108. b 600,000+(
126,
000×8/
12)–(63,
000×4/
12)+(
54,
000×2/
12)=672,
000.

109. b [
(125,
000×2×1.20)+(
375,000×2×1.
20)+(
450,
000×3)+(
310,
000×3)
+(510,
000×2)
]÷12=375,000.

110. c [
(1,
250,
000×3×2)+(1,
450,
000×3×2)+(
1,375,
000×3×2)
+(2,
750,
000×3)
]÷12=2,725,
000.

111. a [
$950,
000–(
10,
000×$100×.
05)
]÷(
300,
000×2)=$1.
50.

$960,
000–$150,
000
16-44 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

112. c ——————————=$2.
70.
300,
000
DERI
VATI
ONS—Ear
ningsPerShar
e,Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion

113. c [
$720,
000–(
10,
000´$100´.
04)
](
200,
000´2)=$1.
70.

114 d (
300,
000´6/
12)+(
600,
000´6/
12)+[
((
35–28)35)´90,
000]=468,
000.

115. b [
($36–$30)$36]´12,
000=2,000
$300,
000(200,
000+2,000)=$1.
49.

116. b ($2,000,000$1,
000)´10=20,000
$2,000,000´.07´(
1–. 30)=$98,
000
($600,000+$98,000)(200,
000+20,000)=$3.
17.

117. c Si
nce$520,
000>$500,
000incl
ude10,000shar
esi
nDEPS
$200,
000(100,
000+10,
000)=$1.82.

118. d [
$800,
000–(
20,
000´$4]200,
000=$3.
60.

119. c [
$800,
000+(
$1,
000,
000´.
10´.
7)][
200,
000+40,
000+(
1,000´45)
]
=$3.
05.

120. d 500,
000+(
500,
000×6/
12)+[
(25–20)
/25×150,
000]=780,
000.

121. c [
$480,
000+(
$2,
000,
000×.
07×.
60)
]÷(
200,
000+40,
000)=$2.
35.

122. c Basis: $800,000÷500,000=$1.60.


Dil
uted: $800,
000÷(500,000+50,000)=$1.
45

$3,000+(
$10,
000×.
06×.
70)
123. b ——————————————=$1. 71.
1,
000+1,000

$3,
000,
000+(
$10,
000,
000×.
06×.
7)
124. c —————————————————=$4. 56.
3
500,
000+(100,
000×—-)+225,
000
12

$160,
000+($300,
000×.
09×.
7)
125. b —————————————————=$3. 03.
50,
000+[
($300,
000÷$1,000)×30)]

$3,400,
000
126. b ——————————=$1.
74.
1,
200,
000+750,000
Di
l
uti
veSecur
it
iesandEar
ni e 16-45
ngsperShar

$600,
000–(
20,
000×$3)
127. d ———————————=$2.
70.
200,
000
DERI
VATI
ONS—Ear
ningsPerShar
e,Comput
ati
onal
(cont
.)
No. Answer Der
ivat
ion

$600,
000+($1,
000,
000×.
10×.
7)
128. c ————————————————=$2. 35.
200,
000+45,
000+40,
000

129. b 3,
200,
000+(
800,
000×9/
12)+(400,
000×6/12)=4,
000,
000(
BEPS)
4,
000,
000+(
20,
000×20×3/12)=4,
100,
000(DEPS)
.

130. b 4,
000,
000+(
200,000×9/12)+(480,
000×4/12)=4,310,000.
4,
310,
000+[
($6,
000,000÷$1,
000)×40×3/12]=4,370,000.

$5,
000,000
131. b ——————————=$1.
67.
2,
000,
000+1,000,
000

$4,500,
000+($12,
000,000×.
06×.
7)
132. c ——————————————————=$2. 35.
1,
200,
000+(
400,0004/12)+800,000

133. a 1,
800,
000+(
150,000×6/
12)+(300,000×3/12)=1,
950,
000
1,
950,
000+(
6,000×40×9/12)=2,130,
000.

$600,000–(
15,
000×$3.
00)
134. c —————————————=$3. 70.
150,
000

$600,
000+($2,400,
000×.
09×.
7)
135. b ————————————————=$2. 95.
150,
000+75,000+30,000

136. c 30,
000×$20÷$25=24,
000
30,
000–24,
000=6,
000.

137. d 90,
000–(90,
000×$37÷$50)=23,
400
300,
000+23,
400=323,
400.

DERI
VATI
ONS—Ear
ningsPerShar
e,CPAAdapt
ed
No.Answer Deri
vat
ion
138. b $620,
000–$80,
000
—————————=$1. 80.
300,
000
16-46 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

139. b $400,000–(
10,
000×$100×.
05)
———————————————=$1. 94.
180,
000

140. d $3,400,
000–$200,
000
——————————–=$1. 28.
2,
400,
000+100,000

141. b 560,
000+(
40,
000×6/
12)+[
32,
000–(
32,
000×$15÷$20)
]=588,
000.

142. b Concept
ual
.

143. d Concept
ual
.

144. a Concept
ual
.
Di
l
uti
veSecur
it
iesandEar
ni e 16-47
ngsperShar

EXERCI
SES

Ex.16-
145—IssuanceandConv er
sionRepur chaseofConv er
tibleBonds.Bar oneCorpor ati
on
i
ssues3,000convert
iblebondsatJanuar y1,2011.Thebondshav eat hreeyearli
fe,
andar e
i
ssuedatparwithafacev alueof€1, 000perbond, giv
ingtot
al proceedsof€3, 00,
000.Interesti
s
payabl
eannuall
yat6per cent.Eachbondi sconvert
ibl
einto250or dinaryshares(parvalueof€1) .
Whenthebondsar eissued,themar ketrateofinter
estforsi
mi lardebtwi t
houttheconv ersi
on
opti
onis8%.

I
nst
ruct
ions
(
a)Comput
ethel
i
abi
l
ityandequi
tycomponentoft
heconv
ert
ibl
ebondonJanuar
y1,
2011.
(
b)Pr
epar
ethej
our
nal
ent
ryt
orecor
dthei
ssuanceoft
heconv
ert
ibl
ebondonJanuar
y1,
2011.
(
c)Pr
epar
ethej
our
nal
ent
ryt
orecor
dtheconv
ersi
ononJanuar
y1,
2012.
(
d)Assumet hatthebondswererepurchasedonJanuar y1,2012,for€2,
910,000cashi nst
eadof
beingconvert
ed.Thenetpresentval
ueoft heli
abil
i
tycomponentoft heconv ert
ibl
ebondson
January1,2012,i
s€2,850,
000.Preparethejournal
entrytorecordtherepurchaseonJanuary
1,2012.

Sol
uti
on16-
145
(
a)PresentValueofPrincipal
:
(
€3,000,000.79383) €2,
381,
490
PresentValueofInterestPayment
s:
(€180,0002.57710)  
  
  
463,
878
PresentValueoftheLi abi
li
tyComponent €2,
845,
368

Fai
rValueofConver
tibl
eDebt €3,
000,
000
Less:
FairVal
ueofLiabi
li
tyComponent  
 2,
845,
368
Fai
rValueofEqui
tyComponent €154,362

(
b)Cash 3,
000,
000
BondsPayabl
e 2,
845,
368
SharePr
emium—Conv
ersi
onEqui
ty   
154,
632

(
c)SharePremium—Conv ersi
onEqui
ty 154,
632
BondsPay abl
e(€2,845,368+€47,629) 2,
892,
997
ShareCapit
al—Or di
nary 750,
000
SharePremium—Or di
nar
y 2,
297,
629*
*€154,
632+€2, 892,997–€750,000

(
d)SharePremium—Conv ersi
onEqui
ty 60,
000*
BondsPay abl
e 2,
892,
997
Cash 2,
910,000
GainonRepurchase(€2,
892,
997–€2,
850,
000) 42,997
*€2,
910,000–€2,850,000
16-48 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-49
ngsperShar

Ex.16-
146—Conv
ert
ibl
eBonds.
KochCo.sol dconv ertiblebondsatapr emium.Int
erestispai
donMay31andNov ember30.On
May31, aft
eri nter
estwaspai d,
100,$1,000bondsar etender
edforconv
ersi
oni
nto3,000shares
of$10parv alueor dinarysharesthathadamar ketpriceof$40pershar
e.HowshouldKochCo.
accountfort heconv ersionofthebondsi ntoordinaryshar
esunderthebookvaluemet hod?
Discusstherationalefort hi
smethod.

Sol
uti
on16-
146
Toaccountf ort heconv ersi
onofbondsundert hebookv al
uemet hod,BondsPay ableshouldbe
debitedforthecar r
y i
ngvalue,andShar eCapital
–Or dinaryshouldbecr editedatparf ort
heshares
i
ssued.Usi ngt hebookv aluemet hod,nogain( l
oss)onconv ersioni srecorded.Theamountt obe
recordedf ort heshar esisequalt othebook( carryi
ng)v alue( facev alueplusunamor ti
zed
premi um)oft hebonds.Shar ePremium–Or dinar ywouldbecr editedf ort hediff
erencebetween
thebookv al
ueoft hebondsandt heparv alueoft hesharesi ssued.Ther at
ionaleforthebook
valuemet hodist hattheconv er
sionisthecompl eti
onoft hetransact i
oni niti
atedwhent hebonds
wer eissued.Si ncet hisisviewedasat ransact i
onwi thshar eholders,nogai n(loss)shoul
dbe
recognized.

Ex.16-147(Issuance,Conv ersion,RepurchaseofConv ert


ibl
eBonds)OnJanuar y1, 2011,Li
n
Companyi ssuedaconv ert
iblebondwi t
haparv al
ueof$100,000i nt
hemar ketfor$120,
000.The
bondsar econverti
bleinto12,000or dinarysharesof$1pershar eparval
ue.Thebondhasa5-
yearl
ifeandhasast atedinterestrateof10%pay abl
eannually.Themarketint
erestrat
efora
simil
arnon-converti
blebondatJanuar y1,2011, i
s8%.Theliabil
it
ycomponentoft hebondis
comput edtobe107, 986.Thef ollowingbondamor ti
zat
ionscheduleisprovi
dedf ort
hisbond.

EFFECTI
VE-
I
NTERESTMETHOD
10%BONDDI SCOUNTEDAT8%

Car
ryi
ngAmount
Dat
e CashPai
d I
nter
estExpense Pr
emium ofBonds
Amor
tized
1/
1/11 $107,986
12/
31/11 $10,000 $8,638 $1,
362 $107,986
12/
31/12 10,
000 $8,530 1,
470 106,
624
12/
31/13 10,
000 8,
412 1,
588 105,
154
12/
31/14 10,
000 8,
286 1,
714 103,
566
12/
31/15 10,
000 8,
148 1,
852 100,
000

I
nst
ruct
ions

(
a)Pr eparet
hej ournalentr
yt orecordt heissuanceoft heconvert
ibl
ebondonJanuar y1,2011.
(
b)Assumet hatthebondswer econv ertedonDecember31, 2013.Thef ai
rvalueoft heliabi
li
ty
componentoft hebondi sdet erminedt obe$108, 000onDecember31, 2013.Preparet he
j
ournalentrytorecordtheconv er
siononDecember31, 2013.Assumet hattheaccr ualof
i
nterestr
elatedto2013hasbeenr ecor ded.
(
c) Assumet hattheconv ert
iblebondswer erepurchasedonDecember31, 2013, f
or$111, 000
i
nsteadofbei ngconv er
ted.Asi ndi
cat ed,thel
iabi
lit
ycomponentoft hebondi sdet erminedto
be$108,000onDecember31, 2013.Assumet hattheaccrualofi
nterestrel
atedto2013has
16-50 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

beenr
ecor
ded.

Sol
uti
on16-
147
(
a)Cash 120,
000
BondsPayabl
e 107,
986
Shar
ePremi
um—Conv
ersi
onEqui
ty 12,
014

(
b)SharePremium—ConversionEquit
y 12,
014
BondsPay abl
e 103,
566
ShareCapit
al—Or
dinary(
12,000$1) 12,
000
SharePremium—Ordinar
y 103,
580

(
c)Comput at
ionofgainorl
oss:
Presentvalueofl
i
abil
it
ycomponent
 
 At12/31/13 108,000
Less:Carryi
ngval
ue(fr
om abov
e) 103,566
Loss  
  
4,434

Adj
ustmentt oequity
:
Fai
rv al
ueofconv erti
blebonds
 
  
(withbothliabi
li
tyandequit
y) 111,
000
Less:Liabi
l
itycomponent 108,
000
AdjustmenttoShar ePremium––Conv
ersi
on  
  
 3,
000

SharePremi
um––Conver
sionEqui
ty  
  
 3,
000
BondsPayabl
e 103,
566
LossonRepurchase  
  
 4,
434
Cash 111,
000

Ex.16-
148(IssuanceandConver
sionofBonds)Foreachoftheunrel
atedt
ransact
ionsdescr
ibed
below,
presenttheentr
y(i
es)r
equi
redtorecor
deachtransact
ion:

1. BadenCor p.issued€5,000,000parv al
ue10%conv ert
iblebondsat99.I fthebondshadnot
beenconv ertible,
thecompany ’
si nvestmentbankerdet erminest hatt heywoul dhav ebeen
soldat95.
2. FlemingCompanyi ssued€5, 000, 000parv alue10%bondsat98.Oneshar ewar rantwas
i
ssuedwi theach€100parv aluebond.Att hetimeofissuance, thewar rantswer esel l
ingfor
€4.Thenetpr esentv al
ueoft hebondswi thoutthewarrantswas€4, 800,000.
3. Jackson, I
nc.cal l
editsconv ertibledebtin2010.Assumet hef oll
owi ngrelatedtot he
transaction: The11%€5, 000,000parv aluebondswer econv ertedi nto500shar esof€1par
valueor dinaryshar esonJul y1, 2010.Thecar ryi
ngamountoft hedebtonJul y1was
€4,800,000.TheShar ePremi um––Conv ersi
onEquityaccounthadabal anceof€1, 000,000
andt hecompanypai danaddi tional€35,000t othebondholder stoi nduceconv ersionofall
thebonds.Thecompanyr ecor dst heconv ersi
onusingthebookv aluemet hod.
Di
l
uti
veSecur
it
iesandEar
ni e 16-51
ngsperShar

Sol
uti
on16-
148
1. Cash(€5,
000,
000.99) 4,
950,
000
BondsPay
able(
€5,000,
000.95) 4,
750,
000
Shar
ePremium—Conversi
onEqui
ty 200,
000

2. Cash(€5,
000,
000.98) 4,
900,
000
BondsPay
able 4,
800,
000
Shar
ePremium––Shar
eWar
rant
s 1,
000,
000

3. SharePremi um––Conv ersi


onEqui
ty 100,
000
Conversi
onExpense   
35,
000
BondsPay able 4,
800,
000
ShareCapi tal––Or
dinary  
 500,
000
SharePr emi um––Ordinar
y 4,
400,000
Cash  
  
 75,
000

*
[(€4,
800,
000+€100,
000)–€500,
000]

Ex.16-
149—Shar
eopt
ions.
Pr
eparethenecessar
yentri
esfrom 1/
1/10-2/
1/12forthef
oll
owi
ngev
ent
susi
ngt
hef
airv
alue
method.I
fnoentr
yisneeded,wr
ite"
NoEntryNecessar
y."

1.On1/ 1/10,thesharehol
dersadoptedashareopti
onplanfortopexecut
iveswherebyeach
mightreceiv
eright
st opurchaseupto12,
000ordi
naryshar
esat$40pershare.Theparval
ue
i
s$10pershar e.

2.On2/ 1/10,optionsweregr ant


edt oeachoff i
veexecutivestopurchase12,000shares.The
opt
ionswer enon- tr
ansfer
ableandt heexecut
ivehadt oremainanempl oyeeofthecompany
toexercisetheopt i
on.Theopt i
onsexpir
eon2/ 1/12.Iti
sassumedt hatt
heopt i
onswerefor
ser
vices performed equall
yi n 2010 and 2011.The Bl ack-
Schol
es option pr
ici
ng model
det
ermi nestotalcompensationexpensetobe$1,300,000.

3.At2/
1/12,f
ourexecut
ivesexer
cisedthei
ropt
ions.Thef
if
thexecut
ivechosenott
oexer
cise
hi
sopti
ons,
whichther
eforewer
ef or
fei
ted.

Sol
uti
on16-
149
1. 1/
1/10
Noent
rynecessar
y.

2. 2/
1/10
Noent
rynecessar
y.

12/
31/
10
Compensat
ionExpense 650,
000
Shar
ePr emium—Shar
eOpt
ions 650,
000
12/
31/
11
Compensat
ionExpense 650,
000
Shar
ePr emium—Shar
eOpt
ions 650,
000
16-52 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

Sol
uti
on16-
149(
Cont
.)
3. 2/1/
12
Cash(4×12,000×$40) 1,920,000
Shar
ePr emi
um—Shar eOpt
ions($1,
300,
000×4/5) 1,040,000
Shar
eCapit
al—Ordi
nary 480,000
Shar
ePremium—Ordinar
y 2,480,000

Shar
ePremi
um—ShareOpti
ons 260,
000
Shar
ePr
emiun—Expi
redShar
eOpt
ions 260,
000

Ex.16-
150—Wei
ght
edav
erageshar
esout
standi
ng.
OnJanuary1,2012,WarrenCorporati
onhad1,000,000ordi
narysharesout
standing.OnMar
ch1,
thecorpor
ati
onissued150,000newshar estoraiseaddi
ti
onalcapit
al.OnJuly1,thecor
por
ati
on
decl
aredandissueda2-for-
1sharesplit
.OnOct ober1,t
hecorporat
ionpurchasedonthemarket
600,
000ofitsownoutstandingsharesandret
ir
edt hem.

I
nstruct
ions
Computet hewei
ght
edav
eragenumberofshar
est
obeusedi
ncomput
ingear
ningspershar
efor
2010.

Sol
uti
on16-
150
Incr
ease Months
(Decr
ease)Outstandi
ngOutst
andi
ng Shar
eMont
hs
Jan.1 —1,000,000 22/1 4,
000,
000
March1 150,
0001,150,000 42/1 9,
200,
000
Jul
y1 1,
150,
0002,300,000 3 6,
900,
000
Oct.1 (
600,
000)1,700,000 3 5,
100,
000
12 25,
200,
000
(
25,
200,
000÷12) 2,
100,
000

Ex.16-
151—Ear
ningspershar
e.
SantanaCorporat
ionhas400,000ordi
nar
ysharesoutstandi
ngthr
oughout2012.I
nadditi
on,the
corporat
ionhas5,000,20-
year
,7%bondsissuedatparin2010.Each$1,
000bondi sconver
tibl
e
i
nto20or di
nar
yshar esaft
er9/23/
13.Duri
ngthey ear2012,t
hecorporat
ionearned$600,000
Di
l
uti
veSecur
it
iesandEar
ni e 16-53
ngsperShar

af
terdeduct
ingal
lexpenses.Thet
axr
atewas30%.

I
nstr
uct
ions
Comput
et hepr
operear
ningspershar
efor2012.
16-54 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

Sol
uti
on16-
151
Netincome $600,000
Ear
ningspershar
e: —————————=————=$1. 50
Out
standingshar
es 400,000

Neti
ncome+Inter
estaf
tert
axes
Ear
ningspershar
eassumi
ngbondconv
ersi
on: ———————————————
Assumedout
standi
ngshares

$600,
000+$245,
000
(
$350,
000×.
7=$245,
000)
;——————————=$1. 69
400,
000+100,
000

Therefor
ethebondsar
eant
idi
l
uti
ve,andear
ningspershar
eout
standi
ngof$1.
50shoul
dbe
report
ed.

Not
ethatt
heconv
ert
ibl
esecur
it
yisant
idi
l
uti
ve:

Bondi
nterestaf
tertaxes $245,000
—————————————= ————=$2. 45
Assumedincrementalshares 100,000

Ex.16-
152—Di
l
utedear
ningspershar
e.
DunbarCompanyhad400,000ordi
nar
ysharesoutst
andingduri
ngt heyear2011.Inaddit
ion,at
December31,
2011,90,
000shareswer
eissuabl
euponexer ci
seofexecuti
veshareopt
ionswhi ch
requi
rea$40cashpaymentuponexerci
se(opt
ionsgrantedin2009).Theaveragemarketprice
duri
ng2011was$50.

I
nstr
uct
ions
Comput
et henumberofshar
est
obeusedi
ndet
ermi
ningdi
l
utedear
ningspershar
efor2011.

Sol
uti
on16-
152
Shar
esoutst
andi
ng 400,
000
Add:Assumedi
ssuance 90,
000
490,
000
Deduct
:Pr
oceeds/
Aver
agemar
ketpr
ice(
$3,
600,
000÷$50) (72,
000)
Numberofshar
es 418,
000
Di
l
uti
veSecur
it
iesandEar
ni e 16-55
ngsperShar

*
Ex.16-
153—Shar
eappr
eci
ati
onr
ight
s.
OnJanuar y1,2009,OrrCo.establ
ishedashareappreciat
ionri
ghtsplanforitsexecuti
ves.They
couldreceiv
ecashatanyt i
medur ingthenextfouryearsequaltothedi f
ferencebetweent he
marketpriceoftheordi
narysharesandapr eest
abli
shedpr i
ceof$16on300, 000SARs.Thef ai
r
val
ue of t he SARs is estimate as foll
ows:12/ 31/09—$5;12/ 31/
10—$2;12/ 31/11—$3;
12/31/12—$4.OnDecember31,2011,50, 000SARsar eexerci
sed,andther emainingSARsar e
exerci
sedonDecember31, 2012.

I
nst
ructi
ons
(
a) Prepareaschedulethatshowstheamountofcompensationexpenseforeachoft
hef
our
yearsstart
ingwit
h2009.
(
b) Preparethejour
nalentr
yat12/31/10t
orecordcompensationexpense.
(
c) Preparethejour
nalentr
yat12/31/12t
orecordtheexer
ciseoftheremaini
ngSARs.

*
Sol
uti
on16-
153
(
a) Schedul
eofCompensat
ionExpense
300,
000SARs

Cumulati
ve Compensat i
on
Fair Compensat i
on Percent
age Accr
ued
Date Value Recogni
zable Accrued t
oDate Expense
12/
31/09 $5 $1,500,00025%$375, 000 $375, 000
(75,000)
12/
31/
10 2 600,00050%300, 000 (75,000)
375,000
12/
31/
11 3 900,00075%675, 000 375, 000
325,000
12/
31/
12 4 1, 000,000100%1,000,000 325, 000

(
b) Li
abi
l
ityUnderShar
eAppreci
ati
onPl
an 75,
000
Compensati
onExpense 75,
000

(
c) Li
abi
l
ityUnderShar
eAppr
eci
ati
onPl
an 1,000,000
Cash 1,000,000
16-56 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

PROBLEMS
Pr
.16-
154—Conv
ert
ibl
ebondsandshar
ewar
rant
s.
Foreachoftheunrel
atedt
ransact
ionsdescr
ibedbel
ow,pr
esentt
heent
ry(
ies)r
equi
redt
orecor
d
thebondt
ransact
ions.
1.OnAugust1,2011,LaneCorporat
ioncalledit
s10% conv ert
iblebondsforconv er
sion.The
$8,
000,000parbondswereconvertedinto320,000sharesof$20paror dinar
yshar es.On
August1,t
herewas$700,
000ofunamor ti
zedpremium appl
icablet
ot hebonds.Thefairval
ue
oftheordi
nar
yshareswas$20pershare.Ignor
ealli
nter
estpay ments.
2.Packard,I
nc.deci
destoissueconvert
ibl
ebondsi nsteadofor
dinar
yshares.Thecompany
i
ssues10%conv er
tibl
ebonds,par$3,
000,000,at97.Theinv
est
mentbankerindi
cat
esthati
f
thebondshadnotbeenconvert
ibl
etheywouldhavesoldat94.
3.GomezCompanyi ssues$5,000,
000ofbondswi thacouponr ateof8%.Tohel pthesale,
det
achabl
esharewarrantsar
eissuedattherat
eoft enwarr
antsforeach$1,000bondsold.It
i
sestimat
edthatthefairval
ueoft hebondswithoutthewarr
antsis$4,935,000.Thebonds
wit
hthewarr
antssoldat101.

Sol
uti
on16-
154
1.BondsPayabl
e 8,700,000
ShareCapit
al—Or
dinary 6,400,000
SharePremium—Ordinar
y 2,300,000

2.Cash 2,910,000
BondsPayabl
e($3,
000,
000.94) 2,820,000
SharePr
emium—Conversi
onEqui
ty 90,000

3.Cash 5,050,000
BondsPayabl
e 4,935,000
SharePr
emium—Shar
eWar
rant
s 115,000

Pr
.16-
155—Ear
ningspershar
e.
ColsonCor p.had$500,000neti
ncomein2011.OnJanuar y1,2011therewer
e200,000ordi
nary
sharesoutstandi
ng.OnApr i
l1,20,
000shar eswereissuedandonSept ember1,Adcockbought
30,
000 t r
easuryshares.There ar
e 30,000 opti
ons to buyordinar
yshares at$40 a share
outstandi
ng.Themar ketpri
ceoftheordinaryshar
esav er
aged$50dur i
ng2011.Thet axr
ateis
40%.

Dur
ing 2011,t
here were 40,
000 shares ofconver
ti
ble pr
eference shar
es out
standi
ng.The
pr
efer
enceis$100par,
pays$3.50ay eardi
v i
dend,
andisconvert
iblei
ntothr
eeordi
naryshar
es.

Colsonissued$2,
000,000of8%conver
ti
blebondsatf
acev
aluedur
ing2010.Each$1,
000bondi
s
convert
ibl
einto30ordinar
yshar
es.
Di
l
uti
veSecur
it
iesandEar
ni e 16-57
ngsperShar
16-58 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

I
nstr
uct
ions
Comput
edilut
edear
ningspershar
efor2011.Compl
etet
heschedul
eandshowal
lcomput
ati
ons.

Net Adj
ust
- Adj
usted Adj
ust
- Adjusted
Secur
it
y I
ncome ment NetI
ncome Shar
es ment Shares EPS

Sol
uti
on16-
155
Net Adj
ust
- Adj
usted Adj
ust
- Adjusted
Secur
it
y I
ncome ment NetI
ncome Shar
es ment Shares EPS
a
Ord.Shares $500,
000$(140,000)$360,
000200,000 5,
000 205,
000$1.
76
b
Opti
ons 360,000205,000 6,000 211,
0001.71
c
Bonds 360,
00096,000 456,000 211, 00060,
000271,000 1.
68
Prefer
ence 456,
000140,000596,000 271, 000120,
000391,000 1.52

a
20,
000×3/
4= 15,
000
30,
000×1/
3= (
10,
000)
5,
000SA

b
30,
000
$1,
200,
000÷$50=(
24,
000) (or
)[(
50¬–40)÷50]×30,
000=6,
000 SA
6,
000SA

$96,
000 $140,
000
c
$2,
000,
000×.
08×.
6=$96,
000 ————=$1.
60 ————=$1.
17
60,
000 120,
000

Pr
.16-
156—Basi
canddi
l
utedEPS.
Assumet
hatt
hef
oll
owi
ngdat
arel
ati
vet
oKaneCompanyf
or2012i
sav
ail
abl
e:
NetI
ncome $2,
100,
000

Transacti
onsinOr di
nar
yShar es Change Cumulat
ive
Jan.1,2012,Beginni
ngnumber 700,
000
Mar.1,2012,Purchaseoftreasuryshar
es (60,
000)640,
000
June1, 2012,
Shar espl
i
t2-1 640,0001,
280,
000
Nov .1,
2012,Issuanceofshares 120,0001,
400,
000

8%Cumul ativ
eConverti
blePr
eferenceShar
es
Soldatpar,conv
erti
blei
nto200,000ordi
nar
yshar
es
(adj
ustedforspl
it
). $1,
000,
000

Shar eOpti
ons
Exercisabl
eattheopt
ionpr
iceof$25pershar
e.Aver
age
mar ketpri
cein2012,
$30(marketpr
iceandopt
ionpr
ice
adjustedforspl
it
). 60,
000shar
es
Di
l
uti
veSecur
it
iesandEar
ni e 16-59
ngsperShar
16-60 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

I
nst
ruct
ions
(
a) Computet
hebasi
cear
ningspershar
efor2012.(
Roundtothenear
estpenny.
)
(
b) Computet
hedi
lut
edear
ningspershar
efor2012.(
Roundtothenear
estpenny.
)

Sol
uti
on16-
156
Comput
ati
onofwei
ght
edav
erageshar
esout
standi
ngdur
ingt
hey
ear
:
Januar
y1 Outst
anding 700,000
March1 Repurchase(
5/6×60,
000) (
50,000)
650,000

June1 2-
for
-1spl
it 1,
300,
000
November1 I
ssued(1/
6×120,
000) 20,
000
1,
320,
000

Addi
ti
onal
shar
esf
orpur
posesofdi
l
utedear
ningspershar
e:
Pot
enti
all
ydilut
ivesecur i
ties
8%conv erti
blepr ef
erenceshar es 200,
000
Shareoptions
Proceedsf rom exerci
seof60, 000opt i
ons(60,000×$25) $1,
500,
000
Sharesi ssueduponex erciseofoptions 60,
000
Less:treasurysharespur chasablewithproceeds
($1,500,000÷$30) 50,
000 10,
000
Dil
uti
vesecur i
ti
es—additi
onal shares 210,
000

$2,
100,
000–$80,
000
(
a) Basi
cear
ningspershar
e:——————————=$1. 53
1,
320,
000

$2,
100,
000
(
b) Di
l
utedear
ningspershar
e: ———–——————=$1. 37
1,
320,
000+210,
000

Pr
.16-
157—Basi
canddi
l
utedEPS.
Pr
esent
edbel
owi
sinf
ormat
ionr
elat
edt
oSt
arrCompany
.

1.NetI
ncome[
incl
udi
ngadi
scont
inuedoper
ati
onsgai
n(netoft
ax)of$70,
000] $230,
000

2.Capit
alSt
ruct
ure
a.Cumul at
ive8%pref
erenceshares,
$100par
,
6,
000sharesi
ssuedandoutstandi
ng $600,
000

b.$10par
,,
74,000ordi
narysharesoutstandingonJanuar
y1.
OnApri
l1,40,000shar
eswer eissuedforcash.OnOctober1,
16,
000shareswerepurchasedandr eti
red. $1,
000,
000
Di
l
uti
veSecur
it
iesandEar
ni e 16-61
ngsperShar
16-62 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

Pr
.16-
157(
Cont
.)
c. OnJanuar y2ofthecurrentyear
,Star
rpurchasedOsloCor porat
ion.
Oneoft heter
msoft hepurchasewast hati
fStarr
'snetincomef ort
he
fol
l
owi ngyeari
s$2,400,000ormor e,
50,000addit
ionalshareswould
beissuedtoOslostockholdersnextyear
.

3.Ot
herInfor
mat i
on
a.Av er
agemar ketpr
iceperor
dinar
yshar
edur
ingent
ir
eyear $30
b.Incomet axrat
e 30%

I
nstr
uct
ions
Comput
eearni
ngspershar
efort
hecur
renty
ear
.

Sol
uti
on16-
157
Incomef r
om continuingoperati
ons $160,
000
Lesspr ef
erencedividends (48,
000)
Av ai
l
abletoor di
narybeforediscont
inuedoper
ati
ons 112,
000
Adddi sconti
nuedoper ati
onsgain(netoft
ax) 70,
000
Incomeav ail
abletoor di
nary $182,
000

Wei
ghtedaverageshar
esout
standi
ng:
Januar
y1 74,
000
3/4×40,000 30,
000
1/4×16,000 (4,
000)
100,
000
Basi
cear ningspershar
e:
Incomef r
om cont
inuingoperat
ions $1.
12(
a)
Discont i
nuedoper
ations(netoftax) .
70(
b)
Neti ncome $1.
82(
c)

Cal
cul
ati
ons:
$112,000 $70,
000 $182,
000
(
a) ———— (
b) ———— (
c) ————
100,000 100,
000 100,
000

Di
l
utedearni
ngspershare:
I
ncomef r
om cont
inuingoperat
ions $.75(
a)
Di
sconti
nuedoperati
ons(netoftax) .
46(
b)
NetI
ncome $1.
21(
c)

Cal
cul
ati
ons:
$112,
000 $70,
000 $182,
000
(
a) ———————— (
b) ———— (
c) ————————
100,
000+50,
000 150,
000 100,000+50,
000
Di
l
uti
veSecur
it
iesandEar
ni e 16-63
ngsperShar

Pr
.16-
158—Basi
canddi
l
utedEPS.
Thef
oll
owi
ngi
nfor
mat
ionwast
akenf
rom t
hebooksandr
ecor
dsofLudwi
ck,
Inc.
:

1.Neti
ncome $ 280,
000

2.Capit
alstr
uctur
e:
a.Conv ert
ibl
e6%bonds.Eachoft
he300,$1,
000bondsisconver
ti
ble
i
nto50or di
nar
yshar
esatthepr
esentdat
eandforthenext
10years. 300,
000

b.$10par
,200,
000ordi
nar
yshar
esi
ssuedandout
standi
ng
dur
ingt
heenti
reyear
. 2,
000,
000

c. Sharewar
rantsoutst
andi
ngt
obuy16,
000or
dinar
yshar
es
at$20pershare.

3.Otherinfor
mat i
on:
a.Bondsconv ertedduri
ngthey ear None
b.I ncomet axrate 30%
c. Conv er
ti
bledebtwasout standi ngt
heenti
rey
ear
d.Av er
agemar ketpri
cepershar eofcommonstockdur
ingt
hey
ear $32
e. War r
antswer eoutst
andingt heentir
eyear
f. War r
antsexercisedduri
ngt hey ear None

I
nstr
uct
ions
Comput
ebasicanddi
l
utedear
ningspershar
e.

Sol
uti
on16-
158
Basi
cEPS=$280,
000÷200,
000sh.=$1.
40

Net Adj
ust
- Adjust
ed Adj
ust
- Adjusted Dil
uted
Secur
it
y I
ncome ment NetI
ncome Shar
es ment Shares EPS
Ord.Shares $280,
000—$280,000 200,
000— 200,
000$1.40
Warrants 280,
000—280,000 200, 0001206,
0006, 0001.36
Conv.Bonds 280, 6002292,
000$12, 600 206,
00015,
000221,000 1.
32

16,
000
1
320,
000
———— = (
10,
000)
32
6,
000SA

$12,
600
2
000.
$300, 06.
7=$12,
600 ————=$.84
15,
000
16-64 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2
Di
l
uti
veSecur
it
iesandEar
ni e 16-65
ngsperShar

I
FRSQUESTI
ONS

Tr
ue/
Fal
se

1.i
GAAPandU. S.GAAPhavesigni
fi
cantdi
ffer
encesi
nt her
eport
ingofsecur
it
ieswi
th
char
act
eri
sti
csofdebtandequit
y,suchasconver
ti
bledebt.

2.Underi
GAAP,
all
oft
hepr
oceedsofconv
ert
ibl
edebtar
erecor
dedasl
ong-
ter
m debt
.

3.Underi
GAAP,conver
ti
blebondsare“bi
fur
cat
ed”—separ
atedi
ntotheequi
tycomponent(
the
val
ueoftheconv
ersi
onoption)oft
hebondissueandt
hedebtcomponent.

4.UnderbothU.
S.GAAPandi
GAAP,
thecal
cul
ati
onofbasi
canddi
l
utedear
ningspershar
eis
i
denti
cal.

5.Underi
GAAPr ecor
dingfort
heissuanceofBondsPay
able,
theDi
scountonBondsPay
abl
e
andthePai
d-i
nCapital
-Conver
ti
bleBondscoul
dbeuti
li
zed.

Answerst
oTr
ue/
Fal
se:
1.True
2.False
3.True
4.False
5.True

Mul
ti
pleChoi
ce:

1.Wit
hr egardtorecogni
zi
ngst ock-
basedcompensat i
on
a.iGAAPandU. S.GAAPf oll
owthesamemodel .
b.iGAAPandU. S.GAAPst andardsareunder
goingmajorr ef
orm onval
uat
ionissues.
c. i
thasbeenagr eedthatthesestandar
dswi l
lnotbemer gedduetothedif
fer
encesin
curr
encies.
d.t heref
orm ofU.S.GAAPst andardswil
lnotbeaddresseduntil
iGAAPstandardshavebeen
fi
nali
zed.

2.Thepr i
maryi
GAAPr
epor
ti
ngst
andar
dsr
elat
edt
ofi
nanci
ali
nst
rument
s,i
ncl
udi
ngdi
l
uti
ve
securi
ti
es,
is
a.I AS33.
b.I AS39.
c. IFRS2.
d.I AS2.
16-66 TestBankf
orI
nter
medi
ateAccount
ing,
IFRSEdi
ti
on,
Vol
ume2

3.When$5, 000,
000i
nconv ert
ibl
ebondsareissuedatparwith$800,000inv al
ueoftheequi
ty
opt
ionembeddedi nthebond,theiGAAPjournalent
rywil
li
ncludeadebi tof
a.$800, 000toPaid-i
nCapi t
al— Conv er
tibl
eBondsandacr edittoPr emium onBonds
Pay abl
e.
b.$800, 000toPremium onBondsPay ableandacr edittoPai d-
inCapital— Conver
ti
ble
Bonds.
c. $800,000toDiscountonBondsPay ableandacr edittoPai d-
inCapital— Conver
ti
ble
Bonds.
d.$4, 200,
000toCashal ongwithadebitof$800,000toDiscountonBondsPay abl
eanda
creditt
oBondsPayableandacr edi
ttoPaid-
inCapi
tal—Conv erti
bleBonds.

4.Wit
hr egar
dtocont ract
sthatcanbesettl
edineit
hercashorshar
es
a.iGAAPr equiresthatshar
esettl
ementmustbeused.
b.iGAAPgi vescompani esachoiceofei
thercashorshar
es.
c. U.S.GAAPr equir
esthatshar
esettl
ementmustbeused.
d.t heFASBpr oj
ectproposesthattheIASBadopttheU.S.GAAPappr
oach,r
equi
ri
ngt
hat
shareset
tlementmustbeused.

5.Wi t
hregardt orecogni zingstock-basedcompensat ionunderiGAAPt hef ai
rval
ueofshar es
andoptionsawar dedt oempl oyeesi srecognized
a.int hefir
stf i
scal periodoftheempl oyees’servi
ce.
b.ov erthefiscal periodstowhi chtheempl oyees’ser
vicesrel
ate.
c. i
nt helastfiscal periodoftheempl oyees’serv
icewhent hetotalvaluecanbecalculated.
d.afterlastfiscal periodoftheempl oyees’servi
cewhent hetotalvaluecanbecalculated.

Answer
stoMul
ti
pleChoi
ce:
1.a
2.b
3.c
4.a
5.b

Shor
tAnswer

1.Bri
efl
ydescri
besomeoft hesimil
ari
ti
esanddi f
fer
encesbetweenU.S.GAAPandiGAAP
wit
hrespecttotheaccount
ingfordi
lut
ivesecuri
ti
es,st
ock-
basedcompensat
ion,
and
ear
ningspershare.

1.i
GAAPandU. S.GAAParesubst anti
all
yt hesameintheaccountingfordilut
ivesecur
iti
es,
stock-basedcompensation,andearningspershare.Forexample,bothiGAAPandU. S.
GAAPf ol
lowthesamemodel forrecognizi
ngstock-
basedcompensat i
on.Thatis,t
hefair
valueofsharesandopt i
onsawar dedt oemployeesisrecogni
zedov ertheperiodto
whi chtheemployees’
servicesrel
ate.

Themai ndiffer
encesconcern(1)theaccountingforconver
ti
bledebt.UnderU.S.GAAP
alloftheproceedsofconverti
bledebtarerecordedaslongterm debt.UnderiGAAP,
converti
blebondsar e“
bif
urcated”
, orseparat
edintotheequit
ycomponent–t heval
ueof
theconv er
sionoption–ofthebondi ssueandt hedebtcomponent ;(
2)ami nor
dif
ferenceinEPSr epor
ti
ng–t heFASBal l
owscompani estorebutthepresumptiont
hat
Di
l
uti
veSecur
it
iesandEar
ni e 16-67
ngsperShar

contractsthatcanbeset tl
edineit
hercashorshar
eswi ll
besettledi nshares.i
GAAP
requir
est hatsharesettl
ementmustbeusedi nthi
ssituati
on;(
3)ot herEPSdi ffer
ences
rel
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