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Chap019 - Chapter 19 Share-Based Compensation and Earnings...

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Chapter 19 - Share-Based Compensation and Earnings Per Share Chapter 19 Share-Based Compensation and Earnings Per Share True / False Questions 1. GAAP requires using intrinsic value accounting for employee stock options. True False 2. If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation. True False 3. Compensation expense must be adjusted during the service period to reflect changes in the fair value of options caused by changes in the market price of the underlying shares. True False 4. Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements. True False 5. Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS. True False 6. Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt. True False 19-1
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Chapter 19 - Share-Based Compensation and Earnings Per Share 7. If a company's capital structure includes convertible bonds, diluted EPS might be reduced even if the bonds are not actually converted during the year. True False 8. Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock. True False 9. No time-weighting of contingently issuable shares is required when computing basic EPS. True False 10. If a company reports an extraordinary gain, EPS must be disclosed for both income from continuing operations and net income. True False Matching Questions 11. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. 1. Convertible bonds Add after-tax interest to EPS numerator. ____ 2. Simple capital structure Applies to both convertible debt and convertible equity securities. ____ 3. Treasury stock method Approximation of EPS assuming potential common shares became common stock. ____ 4. If-converted method Assumption used for options, rights, and warrants. ____ 5. Diluted EPS Dual presentation of EPS does not apply. ____ 19-2
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Chapter 19 - Share-Based Compensation and Earnings Per Share 12. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. 1. Price-earnings ratio Expresses the market value of a stock as a multiple of EPS. ____ 2. Undeclared preferred dividends Factored into EPS if the stock is cumulative. ____ 3. Convertible preferred stock dividends Handled retroactively in computing current and prior years' EPS. ____ 4. Contingently issuable shares Omitted from the EPS numerator under the "if converted" methd. ____ 5. Stock dividends and splits
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