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Unformatted text preview: Chapter 19 Share-Based Compensation and Earnings per Share True/False Questions 1. The current FASB standard requires using intrinsic value accounting for employee stock options. Answer: False Learning Objective: 2 Level of Learning: 1 2. Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements. Answer: True Learning Objective: 7 Level of Learning: 1 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. Answer: False Learning Objective: 2 Level of Learning: 2 4. 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. Answer: False Learning Objective: 9 Level of Learning: 2 5. Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS. Answer: True Learning Objective: 10 Level of Learning: 1 6. 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. Answer: True Learning Objective: 2 Level of Learning: 1 7. 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. Answer: True Learning Objective: 10 Level of Learning: 1 8. No time weighting of contingently issuable shares is required when computing basic EPS. Answer: True Learning Objective: 11 Level of Learning: 1 9. 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. Answer: True Learning Objective: 10 Level of Learning: 2 10. If a company reports an extraordinary gain, EPS must be disclosed on the face of the income statement for both income from ordinary continuing operations and net income. Answer: True Learning Objective: 12 Level of Learning: 1 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 33 Chapter 19 Share-Based Compensation and Earnings per Share Matching Pair Questions Use the following to answer questions 11-15: 11-15. 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. Terms: A. Complex capital structure B. Contingently issuable shares C. Convertible bonds D. Convertible preferred stock dividends E. Diluted EPS F. If converted method G. Price-earnings ratio H. Simple capital structure I. Stock dividends and splits J. Treasury stock method Phrases: 11. ____ Add after-tax interest to EPS numerator....
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