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Flashcards in chapter 16 Deck (21)
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1
Q

convertible securities that may decrease (dilute) EPS when exercised

A

Dilutive Securities

convertible securities that may decrease (dilute) EPS when exercised

2
Q

can be converted into other securities during a specific time period after issuance; classified as liability

A

Convertible Debt

can be converted into other securities during a specific time period after issuance; classified as liability

3
Q

Conversion Method for Convertible Debt

A

Book Value Method

4
Q

issuer offers additional consideration (cash/stock), called sweetener, to encourage prompt conversion; report sweetener as a current period expense (“Debt Conversion Expense”), not a reduction of equity

A

Induced Conversions

5
Q

option to convert into fixed number of common shares; classified as equity

A

Convertible Preferred Stock

option to convert into fixed number of common shares; classified as equity

6
Q

Conversion Method for Convertible Preferred Stock

A

Book Value Method

if par value of CS is greater than book value of PS then debit RE for difference

7
Q

certificate for holder to acquire shares at certain price within stated period

A

Stock Warrant

8
Q

Do bonds with NON DETACHABLE warrants require allocation?

A

NO!

require entire proceeds as debt

9
Q

if issue new shares of stock, old SHs have right to purchase new shares in proportion to current holding (stock right)
(No formal entry until additional shares issues for cash)

A

Rights to Subscribe to Additional Shares

10
Q

employee receive stock based on company performance

A

Stock Compensation Plans

11
Q

give employees option to purchase stock at given price over period of time

A

Stock Options Plans

12
Q

Determining expense method for Stock Options Plans

A

Fair Value Method using option pricing model

13
Q

transfer shares to employees – shares can’t be sold, transferred, or pledged until vesting occurs
(Requires JE for date of grant)

A

Restricted Stock Plans

14
Q

includes only common stock (no potential common stock that upon conversion/exercise could dilute EPS)

A

Simple EPS

15
Q

includes securities that could have a dilutive effect

A

Complex EPS

16
Q

upon conversion/exercise increase EPS

A

Anti-dilutive Securities

17
Q

Measurement Method for Diluted EPS- convertible Securities

A

“If Converted Method”

18
Q

If Converted Method assumes:

A

Conversion at beginning of period (or issuance date if later)
Elimination of related interest (net of tax) or dividends

19
Q

Measurement for Diluted EOS -Options and Warrants

A

Treasury Stock Method

20
Q

Treasury Stock Method assumes:

A

Options/warrants exercised at beginning of year (or issuance date if later)
Company uses proceeds to purchase treasury shares

21
Q

Exercise price > mkt price

A

ANTIDILUTIVE