Chapter 16 Lecture Notes with answers

Chapter 16 Lecture Notes with answers - Dilutive Securities...

Info icon This preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Debt and equity Convertible debt Convertible preferred stock Stock warrants Stock compensation plans Dilutive Securities and Earnings Per Share Dilutive Securities and Compensation Plans Computing Earnings Per Share Simple capital structure Complex capital structure
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 1. Describe the accounting for the issuance, conversion, and retirement of convertible securities. 2. Explain the accounting for convertible preferred stock. 3. Contrast the accounting for stock warrants and for stock warrants issued with other securities. 4. Describe the accounting for stock compensation plans under generally accepted accounting principles. 5. Discuss the controversy involving stock compensation plans. 6. Compute earnings per share in a simple capital structure. 7. Compute earnings per share in a complex capital structure. Learning Objectives
Image of page 2
3 Should companies report these instruments as a liability or equity . Debt and Equity Stock Options Convertible Securities Preferred Stock
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 Dilutive Securities Dilutive Securities Securities that can be converted to stock or which stock may eventually be issued to the holder Potentially decrease the ownership share of current shareholders So, important to current owners to know if dilutive securities exist and their impact on ownership
Image of page 4
5 At issuance: parallels accounting for straight debt. At conversion, typically the book value of the bonds is removed and replaced with common stock. Cost of induced conversions is a period expense. Conversion is initiated by security holder. Convertible Bonds: Concepts Convertible Bonds: Concepts
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 Given: One $1,000 bond, issued at $45 premium The bond is convertible into 10 common shares of $10 par At conversion: unamortized premium is $30 Record the conversion using the book value method . Conversion of Debt: Example Conversion of Debt: Example
Image of page 6
7 Given: One $1,000 bond, issued at $45 premium The bond is convertible into 10 common shares of $10 par At conversion: unamortized premium is $30 Record the conversion using the book value method . Conversion of Debt: Example Conversion of Debt: Example Bonds payable       1,000 Premium on bonds payable        30       Common stock - par                100          Paid-in-cap            930
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
8 Issuer wishes to encourage prompt conversion. Issuer offers additional consideration, called a “sweetener.” Sweetener is an expense of the period. Accounting for Convertible Debt Induced Conversion:
Image of page 8
9 Recognized the same way as retiring straight debt issue. Difference between the acquisition price and carrying amount should be reported as gain or loss in the income statement. Accounting for Convertible Debt Retirement of Convertible Debt
Image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
10 Conversion is an equity transaction: hence, no gains or losses are recognized.
Image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern