BUS A312
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 stock warrants.
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 EPS.
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.

CHAPTER 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 the statement.
Prepare a statement of cash flows using the indirect method using the worksheet approach.