Term
| Should you recognize a GAIN or a LOSS on the conversion of convertible bonds? |
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Definition
| Neither, There is no gain or loss |
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Term
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Definition
| Their goal is to induce conversion from liability to equity because want to (reduce interest costs) or (improve their debt to equity ratio) |
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Term
| What are the accounts used when using an induced conversion? |
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Definition
(Debit) Debt conversion expense 70,000
(credit)Cash 70,000 |
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Term
| On retirement of convertible debt is their a gain or loss recognized? |
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Definition
| Yes a gain or loss is recognized |
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Term
| What method do you use when converting from bonds to common stock? |
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Definition
| Use the book value method |
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Term
| Is a gain or loss recognized when converting from Preferred stock to common stock? |
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Definition
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Term
| What method do you use to calculate preferred stock to common stock? |
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Definition
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Term
| Upon conversion of Convertible Preferred Stock to Common Stock if there is not APIC dollar amount, what account do you debit? |
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Definition
| The Retained Earnings account for whatever is left over |
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Term
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Definition
| Certificates entitling the holder to acquire shares of stock at a certain price within a stated period. |
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Term
| Why do companies issue warrants? |
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Definition
1.Make a security look more attractive
2. As evidence of a preemptive right
3. As compensation to employees |
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Term
| If issue price and market selling price of a bond (for stock warrants) are different what do you do with both numbers |
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Definition
The issue price is used at the very end when doing the (issue price * allocation %)
Market selling price is used to find the FMV #'s. (Slide 16-15) |
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Term
| How many securities does a detachable warrant have? |
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Definition
It has two securities
1. a debt security
2. and a warrant to purchase stock |
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Term
| How many securities does a nondetachable security have? |
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Definition
It only has one security
1. Its a debt security |
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Term
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Definition
| Directors of a corporation decide to issue new shares of stock, the old shareholders have the preemptive right to purchase newly issued shares IN THE PROPORTION to their holdings. |
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Term
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Definition
| gives key employees the option to purchase common stock at a given price over an extended period of time |
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Term
| What do effective compensation plans follow? |
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Definition
1. base the compensation on employee and company performance
2. Motivate employees on high levels of performance
3. help retain executives and allow recruitment of new talent
4. maximize employee after-tax benefit and minimize after tax cost
5. Use performance criteria over which the employee has control. |
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Term
| What does the date you receive the options mean? |
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Definition
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Term
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Definition
| The date you receive options |
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Term
| What are the two methods for reporting stock options? What method is acceptable to the FASB? |
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Definition
| There is the intrinsic method, and the fair value method. The fair value method is acceptable to be used by the FASB |
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Term
| When do you recognize compensation expense? |
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Definition
| In the periods in which its employees perform the service. also called the service period |
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Term
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Definition
| The expense the company recognizes in the periods in which its employees perform the service. |
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Term
| When is total compensation cost determined? |
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Definition
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Term
| If an employee that was receiving a stock option plan leaves employment what should happen as far as the journal entry is concerned? |
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Definition
| Paid in Capital- Stock options is debited for this amount, and compensation expense is credited for this amount. |
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Term
| What is more used now-a-days restricted stock or option stock plans |
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Definition
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Term
| Define restricted-stock plans |
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Definition
| transfer shares of stock to employees, subject to an agreement that the shares cannot be sold |
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Term
| Advantages of using Restricted Stock |
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Definition
1. Never becomes completely worthless
2. results in less dilution of existing stockholders
3. Better aligns employee incentives with company incentives. |
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Term
| What must a company disclose while using compensation plans? |
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Definition
1. The nature and terms of the agreement
2. The effect on the income statement
3. The method of estimating the fair value
4. The cash flow effects. |
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Term
| What does EPS mean and what does it indicate? |
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Definition
| It means Earnings per share, and it indicates the income earned per share of Common Stock. |
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Term
| Can earnings per share be recorded for all securities? |
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Definition
| No its for common stock only. |
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Term
| Can earnings per share be recorded for all securities? |
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Definition
| No its for common stock only. |
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Term
| What does simple structure mean? |
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Definition
| The company consists of only common stock or includes NO POTENTIAL COMMON STOCK that upon conversion or exercise should dilute earnings per common share. |
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Term
| What does complex structure mean? |
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Definition
| It includes securities that could have a dilutive effect on Earnings per common share. |
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Term
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Definition
| The ability to influence EPS in a downwards direction |
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Term
| What does diluted EPS show? |
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Definition
| Shows the difference that the diluted EPS has on the potential dilutive common shares that were outstanding during the period. |
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Term
What does antidilutive securities mean?
Will companies with complex structures report antidilutive securities? |
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Definition
that upon conversion or exercise it willl increase earnings per share.
2. No they will not report this |
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