Securities such as convertible debt or stock options are dilutive because their features indicate that the holders of the securities can become common shareholders. When the common shares are issued, there will be a reductiondilutionin earnings per share.

True

False

QUESTION 2

A corporation decides to issue new shares of stock. A stock right allows management to purchase newly issued shares in proportion to their income valuations.

True

False

QUESTION 3

How is compensation expense computed using the fair value approach?

		Total compensation expense is computed based on the fair value of the options on the date the options are recorded to the employees.
		Total compensation expense is computed based on the fair value of the options on the date the options are granted to the employees.
		Total compensation expense is computed based on the fair value of the options on the date the options are declared to the employees.
		Total compensation expense is computed based on the fair value of the options on the date the options are approved by the Board of Directors.

QUESTION 4

What is diluted earnings per share?

It is the amount of earnings for the period available to each share of common stock outstanding and to each share that is outstanding.

It is the amount of earnings for the period available to each share of preferred stock outstanding and to each share that would have been outstanding assuming the issuance of preferred shares for all dilutive potential preferred shares outstanding during the reporting period.

It is the amount of earnings for the period available to each share of common stock outstanding and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.

It is the amount of stock available for the period available to each share of common stock outstanding and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.

QUESTION 5

Earnings per share can affect market prices of common stock. Can market prices affect earnings per share?

No. Market prices are independent of any earnings per share.

No, warrants and options have no affect on the market price of common stock and therefore have no effect on the dilutive common shares repurchasable.

Yes, if warrants or options are present, an increase in the market price of the common stock can decrease the number of potentially dilutive common shares by incresasing the number of shares repurchasable.

Yes, if warrants or options are present, an increase in the market price of the common stock can increase the number of potentially dilutive common shares by decreasing the number of shares repurchasable.

QUESTION 6

Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. What is the discount on Bonds payable?

		$40,000
		$200,000
		$160,000
		No discount

QUESTION 7

Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $40. Using the proportional method, what is the discount on Bonds Payable?

		$80,000
		$59,216
		$79,216
		$20,000

QUESTION 8

Copy of

Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $40. Using the proportional method, what is the Paid - In Capital - Stock Warrants?

		$80,000
		$59,216
		$79,216
		$20,000