Acct 551 Quiz 6

1. (TCO A) When issuing convertible bonds, a company would record the bond issuance under i-GAAP as (Points : 5) |

       a liability.

       part liability, part equity.

       part liability, and record the conversion portion of the bond as a contra equity account until converted.

       None of the above 

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2. (TCO A) On March 1, 2010, Ruiz Corporation issued $800,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2030. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2010, the fair market value of Ruiz's common stock was $40 per share and the fair market value of the warrants was $2.00. What amount should Ruiz record on March 1, 2010 as paid-in capital from stock warrants?

(Points : 5) |

       $28,800

       $33,600

       $41,600

       $40,000

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3. (TCO A) On December 31, 2010, Gonzalez Company granted some of its executives options to purchase 100,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $750,000. The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011. At December 31, 2011 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method? (Points : 5) |

       $250,000 increase

       $750,000 decrease

       $250,000 decrease

       $0

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4. (TCO A) On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next 4 years for the difference between the market price of...