-
Securities that, although they are not in the form of common stock, enable their holders to obtain common stock upon exercise or conversion.
Dilutive securities
-
Bonds that can be exchanged for other securities of the issuing corporation after a specified time after issuance.
Convertible bonds
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When converting bonds to stock using the book value approach, the new stock is issued at the... of the old bonds.
book value
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4 steps of book value approach to converting bonds to stock.
1.
2.
3.
4.
- 1. Update Discount/Premium
- 2. Zero out BP and Discount/Premium
- 3. Credit CS @ par value'
- 4. Credit the remainder to PIC in EOP
-
Preferred stock that can be exchanged for other securities of the issuing corporation after a specified time after issuance.
Convertible preferred stock
-
An arrangement where the acquirer promises to issue additional shares of stock if certain conditions are met.
Contingent issue agreement
-
A certificate that entitles the holder to acquire shares of stock.
Stock Warrant/Option
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4 things included on a stock warrant/option.
1.
2.
3.
4.
- 1. Type/Number of shares that may be acquired
- 2. Purchase price
- 3. Exchange ratio of warrants to stock
- 4. Expiration date
-
3 reasons stock warrants/options are issued.
1.
2.
3.
- 1. To improve attractiveness of another security
- 2. To give existing stockholders their preemptive right
- 3. To give to employees
-
The proportional method of allocating the proceeds from the sale of securities with warrants/options is based on the... of the bonds.
relative sales value
-
The incremental method is used when allocating the proceeds from the sale of securities with warrants/options, when the... of the warrants OR the bonds is unknown.
fair value
-
With noncompensatory stock option plans, the purpose of issuing the warrants to employees is to... or more widespread... rather than to provide additional...
obtain capital, employee ownership, compensation
-
Compensatory stock option plans are typically offered to... of the corporation to provide them with additional...
key officers, compensation
-
The date on which the option is given to the employee.
Grant date
-
What 2 things are known on the measurement date?
1.
2.
- 1. The # of shares an employee is entitled to receive
- 2. The option price
-
The date on which the employee's right to receive or retain shares of stock is no longer contingent on remaining in the service of the employer.
Vesting date
-
One or more years in which the company receives the benefit of the employee's services.
Service period
-
The service period is the... period. (the time between the grant date and the vesting date)
vesting
-
The service period is specified by the...
stock option plan
-
The intrinsic value method measures compensation cost based on the difference between the... and the... of the stock option at the grant date.
market price, exercise price
-
The fair value method measures compensation cost based on the... of the stock option at the grant date.
fair value
-
The incentive stock option plan benefits the...
employee.
-
These give the holder the right to receive share appreciation either in the form of cash or stock.
Stock appreciation rights
-
Share appreciation = ... @ the exercise date - ...
pre-established price
-
Unlike incentive and unqualified stock option plans, stock appreciation rights... represent the right to purchase stock @ less than MV.
DO NOT
-
A stock option plan where the executive receives CS or cash if specified performance criteria are met during the performance period.
Performance-type plan
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Capital structure that doesn't include securities, options, or rights that could dilute EPS.
Simple Capital Structure
-
A simple capital structure requires a... presentation of basic EPS.
single
-
Capital structure that includes convertible securities, options, or rights that (upon conversion or exercise) could dilute EPS.
Complex Capital Structure
-
A complex capital structure requires a... presentation of basic EPS and diluted EPS.
dual
-
Arguments against expensing options.
1. The cost of options is... and not an...
2. Compensation models are...
3. Will distort corp. poerformance because...
4. It will hinder... and...
- 1. dilution, expense
- 2. inacurrate
- 3. it's a noncash charge
- 4. economic growth, innovation
-
Arguments for expensing options.
1. Has led to a lack of... and more...
2. Options are an...
3. Compensation models are...
4. Undermines... and will lead to...
- 1. transparency, hiding
- 2. expense
- 3. reliable
- 4. financial reporting, poor capital allocations
-
Steps in calculating DEPS.
1. Calculate...
2. Determine if options are...
3. Apply... method to determine # of...
4. Determine if convertible securities are... by ranking based on...
5. Determine if each convertible security in ranking order has a...
- 1. basic EPS
- 2. dilutive
- 3. TS, incremental shares
- 4. dilutive, impact on DEPS
- 5. dilutive effect on DEPS
-
If the market price of the options > option price, the options are... and included in...
dilutive, DEPS
-
If options are dilutive there will be an increase in...
common stock outstanding
-
When ranking convertible securities to check for dilution, the lowest impact on DEPS is at the top of the ranking because it causes the greatest increase in the... resulting in more...
denominator, dilution
-
EPS is presented for what 3 incomes?
1.
2.
3.
- 1. Income from cont. ops
- 2. Income before extraordinary items
- 3. NI
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