CHAPTER 16 Dilutive Securities and Earnings Per Share ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. 2. 3. Convertible debt and preferred stock. Warrants and debt. Stock options, restricted stock. Earnings Per Share (EPS)—terminology. EPS—Determining potentially dilutive securities. EPS—Treasury stock method. EPS—Weightedaverage computation. EPS—General objectives. EPS—Comprehensive calculations. EPS—Contingent shares. Stock appreciation rights. 16 Questions 1, 2, 3, 4, 5, 6, 7, 28 2, 3
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Abstract This paper attempts to discuss current GAAP treatments of both convertible bonds and redeemable preferred stock. This paper will also demonstrate an example as to how the accounting would change on financial statements in regards to these securities. It takes into account present effects as well as future years; in addition it also considers the conversion of bonds as well as how debt covenant restrictions effect these financials. The paper also documents how both capital and operating
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liabilities? Give two examples. What is a bond? Long-term liabilities are obligations that a company expects to pay after one year (Kimmel, 2007). Property, plants, and equipment are examples of long term liabilities. Bonds are a form of interest-bearing note payable issued by corporations, universities, and governmental agencies (Kimmel, 2007). (8) Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible and callable. Secured bonds are bonds that have specific assets of the
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questions are available at the end of this chapter. TRUe-FALSe—Dilutive Securities—Conceptual Answer No. Description T 1. Accounting for convertible bond issue. F 2. Reporting gain/loss on convertible debt retirement. T 3. Reporting additional payment to encourage conversion. F 4. Exercise of convertible preferred stock. F 5. Convertible preferred stock exercise. T 6. Allocating proceeds between debt and detachable warrants. F 7. Allocating proceeds from nondetachable warrants
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various types of bond issues. . There are several different types of bond issues: Secured and Unsecured Bonds – Secured bond is backed by collateral, such as a mortgage or lien. The most common secured bonds are mortgage bonds which are backed by real estate or physical equipment that can be liquidated. Unsecured bond issue is backed only by the creditworthiness and reputation of the issuer, and not by any pledged asset. Term, Serial and Callable Bonds – Term bond issues are bonds which mature
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and pricing bounds • Understand the five major determinants of option value • Understand employee stock options • Understand the various managerial options • Understand the differences between warrants and traditional call options • Understand convertible securities and how to determine their value 1 12/6/2012 Chapter Outline • • • • • • • Options: The Basics Fundamentals of Option Valuation Valuing a Call Option Employee Stock Options Equity as a Call Option on the Firm’s Assets Options
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of the following statements about convertibles is most CORRECT? a. The coupon interest rate on a firm’s convertibles is generally set higher than the market yield on its otherwise similar straight debt. b. One advantage of convertibles over warrants is that the issuer receives additional cash money when convertibles are converted. c. Investors are willing to accept a lower interest rate on a convertible than on otherwise similar straight debt because convertibles are less risky than straight debt
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offering in 1975, from 1978 the company accelerated the financing activities due to the larger capex required, namely, 1) Convertible preferred stock in 1978, 1979 and 1980 at the cost of 10.5~12.3% 2) Subordinated debentures in 1980, 1981 and 1982 at the cost of 15.0~16.8% 3) Convertible subordinated debenture in 1981, 1982 and 1983 at the cost of 7.8~10.3% Convertible preferred stock: The company issued preferred stock of $25.8 million in 1975 and $ 63.1 million in 1979. This is because 1)
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1. Define investing and speculating. The main difference between speculating and investing is the amount of risk undertaken in the trade. Typically, high-risk trades that are almost akin to gambling fall under the umbrella of speculation, whereas lower-risk investments based on fundamentals and analysis fall into the category of investing. Investors seek to generate a satisfactory return on their capital by taking on an average or below-average amount of risk. On the other hand, speculators are
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BONDS: TYPES, RISKS, AND BENEFITS When a corporation wants to borrow money from the public on a long-term basis, it does so by selling securities that are called bonds. There are different types of bonds available, each with different risks and rewards. The different factors associated with each type of bond, determines how it fits into your portfolio. A bond is an interest-only loan, where the borrower will pay the interest every period, and then repay the principal amount at the end of the
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