Question

When computing diluted earnings per share, convertible bonds are

Select one:

a. assumed converted only if they are antidilutive.

b. ignored.

c. assumed converted whether they are dilutive or antidilutive.

d. assumed converted only if they are dilutive.

Y Corporation is organized with authorized common stock of 10,000 shares without par value. If Y then issues 500 shares for cash at $10 per share, it makes the following entry.

Select one:

a. Dr. Equipment 1,500, Cr. Common Stock 5,00 and Cr. Paid in capital -CS 1,000.

b. Dr. Cash 1,500 and Cr. Paid in capital -CS 1,500.

c. Dr. Cash 1,500, Cr. Common Stock 500 and Cr. Paid in capital -CS 1,000.

d. Dr. Cash 5,000 and Cr. Common Stock 5,000.

Clear my choice

Answer 1

Answer to first question:

Option d: assumed converted only if they are dilutive. convertible bonds can be converted into equity shares on excercise of option by bond holder and that can leads to dilution of control. Therefore while computing diluted earnings per share, convertible bonds are considered only when they are dilutive.

Option a: assumed converted only if they are antidilutive. since antidilutive convertible bonds can not create dilution of control of equity, therefore can not be taken while computing diluted EPS.

option b: ignored: Since convertible bonds has potential to dilute the control of equity, we can not ignored them while calculating diluted EPS.

option c: assumed converted whether they are dilutive or antidilutive. convertible bonds can be considerd while calculating diluted EPS only when they are dilutive, if they are antidilutive, then they will not be considered while computing diluted EPS.

Answer to second question:

Option d: Dr. Cash 5,000 and Cr. Common Stock 5,000

Explanation: If a company has sold no-par-value stocks, the proceeds from the transaction will be credited to the common stock account only. Hence, the accounting entry will be a debit to cash and credit to the common stock account.

Option a: Since shares issues for cash then equipment account cannot be debited and having no-par-value stock issue, we can not credit paidupcapital account.

option b: amount mention in cash account is incorrect, we issued 500 shares @$10 each, therefore correct amount should be $5000. further paid capital account credited was wrong as explained above.

option c: amount mention in cash account is incorrect, we issued 500 shares @$10 each, therefore correct amount should be $5000. further paid capital account credited was wrong as explained above.