Q1. The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee
a. Is granted the option.
b. Has performed all conditions precedent to exercising the option.
c. May first exercise the option.
d. Exercises the option.
Q2. In 2007, singer, Inc. issued for $103 per share, 40,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Singer's $25 par value common stock at the option of the preferred stockholder. In August of 2008, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?
a. $680,000
b. $520,000
c. $1,000,000
d. $1,120,000
Q3. Windon Corp. On January 1, 2005, granted stock options for 100,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $600,000. The options are exercisable beginning January 1, 2008, provided those key employees are still in Windom's employ at the time the options are exercised. The options expire on January 1, 2009.
On January 1, 2008, when the market price of the stock was $29 per share, all 100,000 options were exercised. The amount of compensation expenses Windom should record for 2007 under the fair value method is
a. $0
b. $100,000
c. $200,000
d. $300,000
Q4. Jenks Co. has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2007, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $175,000. Jenks should record, as a result of this conversion, a
a. Credit of $136,000 to Paid-in Capital in Excess of Par.
b. Credit of $120,000 to Paid-in Capital in Excess of Par.
c. Credit of $56,000 to Premium on Bonds Payable
d. Loss of $8,000
Q5. On December 31, 2007, Heerey Company grantede some of its executives options to purchase 60,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expenses to be $1,200,000. The options become exercisable on January 1, 2008, and represent compensation for executives' past and future services over a three-year period beginning Jnauary 1, 2008. What is the impact on heerey's total stockholders' equity for the year ended December 31, 2007, as a result of this transaction under the fair value method?
a. $1,200,000 decrease
b. $400,000 decrease
c. $0
d. $400,000 increase
Q6. On January 1, 2008, Downs Company granted Tim Wright, an employee, an option to buy 1,000 shares of Downs Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $7,500. Wright exercised his option on September 1, 2008, and sold his 1,000 shares on December 1, 2008. Quoted market prices of Downs Co. stock during 2008 were
January 1 $25 per share
September 1 $30 per share
December 1 $34 per share
The service period is for three years beginning January 1, 2008. As a result of the option granted to Wright, using the fair value method. Downs should recognize compensation expense for 2008 on its books in the amount of
a. $9,000
b. $7,500
c. $2,500
d. $1,500
Q7. In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants
a. Are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share.
b. Are added, net of tax, to the numerator of the calculation for diluted earnings per share.
c. Are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock.
d. None of these.
Q8. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?
a. Decrease and no effect.
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease
Q9. At December 31, 2006, Agler Company had 1,200,000 shares of common stock outstanding. On September 1, 2007, an additional 400,000 shares of common stock were issued. In addition, Agler had $12,000,000 of 6% convertible bonds outstanding at December 31, 2006, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2007. The net income for the year ended December 31, 2007, was $4,500,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2007, rounded to the nearest penny?
a. $2.11
b. $3.38
c. $2.35
d. $2.45
Q10. Which of the following does not describe intangible assets?
a. They lack physical existence.
b. They are financial instruments.
c. They provide long-term benefits.
d. They are classified as long-term assets.
Q11. Which of the following is often reported as an extraordinary item?
a. Amortization expenses
b. Impairment losses for intangible assets other than goodwill.
c. Impairment losses on goodwill.
d. None of the above.
Q12. Liabilities are
a. Any accounts having credit balances after closing entries are made.
b. Deferred credits that are recognized and measured in conformity with generally accepted accounting principles.
c. Obligations to transfer ownership shares to other entities in the future.
d. Obligations arising from past transactions and payable in assets or services in the future.
Q13. A contingency can be accrued when
a. It is certain that funds are available to settle the disputed amount.
b. As asset may have been impaired.
c. The amount of the loss is deemed to be reasonable, and it is probable that an asset has been impaired or a liability incurred.
d. It is probable that an asset has been impaired or a liability incurred, even thought the amount of the loss cannot be deemed reasonable.
Q14. Which of the following best describes the cash-basis method of accounting for warranty costs?
a. Expenses based on estimate in year of sale.
b. Expenses when liability is accrued.
c. Expenses when warranty claims are certain.
d. Expenses when incurred.
Q15. An electronics store is running a promotion in which, for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognizes a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon?
a. The reduction in sales price attributed to the coupon recognized as premium expense.
b. The difference between the cost of the video game and the cash received is recognized as premium expense.
c. Premium expense is not recognized.
d. The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.