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When the cash proceeds from bonds issued with detachable share warrants exceed the fair value of the bonds without the warrants, the excess should...

1. When the cash proceeds from bonds issued with detachable share warrants exceed the fair value of the bonds without the warrants, the excess should be credited to (Points : 2)
share premium—ordinary.
retained earnings.
share a liability account.
premium-share warrants.

2. On May 1, 2012, Marly Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2022. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly’s ordinary shares $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2012, the fair value of Marly’s shares was $35 per share and of the warrants was $2.

On May 1, 2012, Marly should record bonds payable at (Points : 2)

3. Convertible bonds (Points : 2)
Are separated into the bond component and the expense component.
Allow a company to issue debt financing at cheaper rates.
Are separated into their components based on relative fair values.
All of the choices are correct.

4. Stine Inc. had 300,000 ordinary shares issued and outstanding at December 31, 2010. On July 1, 2011 an additional 300,000 shares were issued for cash. Stine also had share options outstanding at the beginning and end of 2011 which allow the holders to purchase 90,000 ordinary shares at $28 per share. The average market price of Stine’s ordinary shares was $35 during 2011. The number of shares to be used in computing diluted earnings per share for 2011 is (Points : 2)

5. Anazazi Co. offers all its 10,000 employees the opportunity to participate in an employee share-purchase plan. Under the terms of the plan, the employees are entitled to purchase 100 ordinary shares (par value $1 per share) at a 20 percent discount. The purchase price must be paid immediately upon acceptance of the offer. In total, 8,500 employees accept the offer, and each employee purchases on average 80 shares at $22 share (market price $27.50). Under IFRS, Anazazi Co. will record (Points : 2)
No compensation since the plan is used to raise capital, not compensate employees.
Compensation expense of $5,500,000.
Compensation expense of $18,700,000.
Compensation expense of $3,740,000.

6. Marsh Co. had 2,400,000 ordinary shares outstanding on January 1 and December 31, 2011. In connection with the acquisition of a subsidiary company in June 2010, Marsh is required to issue 100,000 additional ordinary shares on July 1, 2012, to the former owners of the subsidiary. Marsh paid $200,000 in preference share dividends in 2011, and reported net income of $3,400,000 for the year. Marsh's diluted earnings per share for 2011 should be (Points : 2)

7. Hanson Co. had 200,000 ordinary shares, 20,000 shares of convertible preference shares, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preference shares are convertible into 40,000 ordinary shares. During 2011, Hanson paid dividends of $1.20 per share on the ordinary shares and $4 per share on the preference shares. Each $1,000 bond is convertible into 45 ordinary shares. The net income for 2011 was $800,000 and the income tax rate was 30%.

Diluted earnings per share for 2011 is (rounded to the nearest penny) (Points : 2)

8. According to IFRS, once the total compensation is measured at the date of grant (Points : 2)
It can be changed in future periods related to a change in market conditions.
It can be changed to reflect the rise or fall in the market price of the company’s ordinary shares.
A company is permitted to adjust the number of share options expected to the actual number of instruments vested.
All of the choices are correct.

9. At December 31, 2011 and 2010, Miley Corp. had 180,000 ordinary shares and 10,000 shares of 5%, $100 par value cumulative preference shares outstanding. No dividends were declared on either the preference or ordinary shares in 2011 or 2010. Net income for 2011 was $400,000. For 2011, earnings per share amounted to (Points : 2)

10. Colt Corporation purchased Massey Inc. and agreed to give shareholders of Massey Inc. 50,000 additional shares in 2012 if Massey Inc.’s net income in 2011 is $400,000 or more; in 2010 Massey Inc.’s net income is $410,000. Colt has net income for 2010 of $800,000 and has an average number of ordinary shares outstanding for 2010 of 500,000 shares. What should Colt report as earnings per share for 2010?
Basic Earnings Diluted Earnings

(Points : 2)

This question was asked on Oct 02, 2012.

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