Bakersfield College

ACG 2021

True/False Questions

1)GAAP requires using intrinsic value accounting for employee stock options.

2. If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation.

3. Compensation expense must be adjusted during the service period to reflect changes in the fair value of options caused by changes in the market price of the underlying shares.

4. Current year stock dividends and splits require retroactive restatement of EPS for all prior years presented in comparative financial statements.

5. Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock.

6. Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS.

7. Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt.

8. No time-weighting of contingently issuable shares is required when computing basic EPS.

9. If a company's capital structure includes convertible bonds, diluted EPS might be reduced even if the bonds are not actually converted during the year.