EXAM 2 REVIEW SHEET
CHAPTER 16: Dilutive
Securities and Earnings Per Share
Distinguish between the different
types of dilutive securities and why each type is issued:
convertible debt, convertible preferred stock, stock warrants,
and stock options.
Account for convertible debt using book value of bonds (entry to update
interest and amortization and entry for the conversion).
Account for convertible preferred stock using the book value method (entry
for the conversion).
Know the difference in accounting treatment of detachable versus non-detachable
Account for detachable stock warrants using both the proportional method
and incremental method and know when each method should be applied.
Account for stock options plans used as a compensation instrument using
the fair value method (entries to
record Compensation Expense, entry to record the exercise of the options,
and entry to record the expiration of stock options).
Account for restricted stock transactions.
Calculate both basic and diluted earnings per share (EPS) under both
simple and complex capital structures.
Know the accounting treatment of stock splits and dividends when calculating
When calculating EPS under complex capital structures, account for convertible
bonds and convertible preferred stock using the if-converted method and
account for stock options and warrants using the treasury stock method.
23: Statement of Cash Flows
Know the three major sections of the statement of cash flows
(operating, investing, and financing) and the conceptual differences
and similarities between the direct and indirect methods in preparing
Prepare a statement of cash flows using the indirect method using the