(T/F) The recording of convertible bonds at the date of issue is the same as the recording of straight debt issues.

1. (T/F) The recording of convertible bonds at the date of issue is the same as the recording of straight debt issues. 2. (T/F) The FASB states that when an issuer makes an additional payment to encourage conversion, the payment should be a reduction of paid in capital. 3. (T/F) Companies recognize a gain or loss when stockholders exercise convertible preferred stock. 4. (T/F) A company should allocate the proceeds from the sale of debt with detachable stock warrants between the two securities based on their market values if the market values are known. 5. (T/F) Nondetachable warrants, as with detachable warrants, require an allocation of the proceeds between the bonds and the warrants. 6. (T/F) Under the fair value method, companies compute total compensation expense based on the fair value of options on the date of exercise. 7. (T/F) If an employee fails to exercise a stock option before its expiration date, the company should decrease compensation expense. 8. (T/F) If an employee forfeits a stock option because of failure to satisfy a service requirement, the company should record paid-in capital from expired options. 9. (T/F) If preferred stock is cumulative and no dividends are declared, the company subtracts the current year preferred dividend in computing earnings per share. 10. (T/F) When stock dividends or stock splits occur, companies must restate the shares outstand-ing after the stock dividend or split, in order to compute the weighted-average number of shares. 11. (T/F) When a company has a complex capital structure with dilutive securities, it must report both basic and diluted earnings per share. 12. (T/F) A company should report per share amounts for income before extraordinary items, but not for income from continuing operations. 13.Convertible bonds A. have priority over other indebtedness B. are usually secured by a first or second mortgage C. pay interest only in the event earinings are sufficient to cover interest costs. D. may be exchanged for equity securities. 14. When a bond issuer offers some form of additional consideration (a “sweetener”) to induce conversion, the sweetener is accounted for as a(n) A. extraordinary item B. expense C. loss on sale D. big mistake E. none of the above 15. When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to A. additional paid in capital from stock warrants B. retained earnings C. a liability account D. premium on bonds payable 16. On the books of the issuing company, stock warrants outstanding should be classified as A. liabilities B. reductions of par value C. assets D. equity E. expenses 17. 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 18. The date on which to RECOGNIZE 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. provides services to the company. This can be over a period of time. C. exercises the option and receives the difference between the stock price and the strike price. D. retires. E. takes the company for granted. 19. Fogel 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, 2010, 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 on all outstanding bonds at the date of conversion was $175,000. Fogel 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. 20. Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $40). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? A. $25,000 B. $22,000 C. $32,000 D. $40,000