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31 Cards in this Set

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  • Back
When accounting for convertible debt,
At conversion, bonds= basis can be:
a. either their book value
b. or their market value
When accounting for convertible debt,
Cost of induced conversions is a ______ expense.
When accounting for convertible debt,
Conversion is initiated by the _________
security holder
Convertible preferred stock is classified as ______, unless it is _______.
redeemable preferred stock
Conversion is an _______ transaction, hence, no basis for recognizing gain or loss
At conversion, ________ value of the preferred stock is used
Stock warrants entitle the holder:
to acquire additional shares
within a stipulated period
at a specified price.
Stock warrants may be:
detachable warrants, or non-detachable warrants
Stock warrants are also known as...
stock options
If warrants are detachable, value of the warrants is determined by:
either the proportional method, or
the incremental method
Stock warrants may be:
detachable warrants, or
non-detachable warrants
Stock rights give existing shareholders
preemptive rights to buy shares.
Unlike warrants, rights are of _______ duration.
When stock rights are issued ______ journal entries are made.
No journal entries are made
Stock Compensation Plans
These plans provide employee incentives and may be:
-Stock option plans:
a. incentive plans [IRS approved], or
b. non-qualified plans
-Stock appreciation rights
-Performance plans
Important Stock Option Dates:
1. Work start date-employee begins employment with company
2. Grant date-options are granted to employee
3. Vesting date-date employee can first exercise options
4. Exercise date-employee exercises options
5. Expiration date-unexercised options expire
SFAS No. 123r is now mandatory for all public companies and requires that
the fair value method be used.
Under APB Opinion No. 25, compensation expense is the difference between:
a. the market price of the stock (at grant date), and
b. the exercise price of options (at grant date)
a. the market price of the stock (at grant date), and
b. the exercise price of options (at grant date)
Under SFAS No. 123r, the compensation expense is:
the fair value of stock-based compensation (options) paid to employees for their services
Compensation expense is determined as of
the measurement date (usually the grant date.)
Compensation Expense is allocated
over the service period
The service period is the period benefitted by employee's service. It is usually the period between the ___ and ___
grant date and the vesting date
Stock Appreciation Rights [SARs]

SARs are designed to____
mitigate employee=s cash flow problems in non-qualified plans.
In an SAR an Employee gets a right to receive
any appreciation in share value at exercise date equal to market price less a pre-established amount.

Employee receives cash or stock only for the appreciation.
is the most important number in the income statement
Dilution of EPS means
reduction in EPS.
Reduction in EPS results from
potential conversion of dilutive securities into common stock
Basic EPS:
Net Income - Preferred Dividends /
Weighted Average Outstanding Common Shares
Dilution is
the reduction in EPS, if securities, potentially convertible into common stock, are converted [assumed at beginning of the year].
Two EPS amounts are important:
1. Basic
2. Diluted
Complex structures have _________ that reduce earnings per share.
convertible securities, options, warrants, or other rights