IFRS questions are available at the end of this chapter.
Examples of debt sec
A LITTLE BACKGROUND
Before corporate scandal was the number one focus,
intangible asset valuation, and amortization periods were
among the most scrutinized aspects of financial reportingAND STILL ARE VERY HIGH PRIORITIES
Valuation of Bonds
Cost of Issuing Bonds
Unamortized bond issue costs are treated as a deferred
and amortized over the life of the debt.
Illustration: Microchip Corporation sold $20,000,000 of 10-year
debenture bonds for $20,795,000 on Ja
Long-term debt has various
covenants or restrictions.
Bond contract known as a bond indenture.
Represents a promise to pay:
1. sum of money at designated maturity date, plus
2. periodic interest at a specified rate on the matur
Troubled-debt restructuring occurs when a creditor for economic
or legal reasons related to the debtors financial difficulties grants a
concession to the debtor that it would not otherwise consider.
The payroll of GreenBerry Company for September 2015 is as follows.
Total payroll was $480,000, of which $110,000 is exempt from FICA tax because it
represents amounts paid in excess of $118,500 to certain employees. The amount paid to
STOCK COMPENSATION PLANS
Stock Option - gives key employees option to purchase
common stock at a given price over extended period of
Effective compensation programs are ones that:
1. Base compensation on performance.
2. Motivate employees.
3. Help r
Extinguishment of Debt
Illustration: On January 1, 2010, General Bell Corp. issued at 95
bonds with a par value of $800,000, due in 20 years. Eight years
after the issue date, General Bell calls the entire issue at 101 and
cancels it. At that time, the un
Few companies pay dividends in amounts equal to their
legally available retained earnings. Why?
1. Maintain agreements with creditors.
2. Meet state incorporation requirements.
3. To finance growth or expansion.
4. To smooth out dividend p
INTANGIBLE ASSET ISSUES
1. Lack physical existence
2. Not financial instruments
The Coca-Cola Companys
success comes from its secret
formula for making CocaCola, not
its plant facilities.
3. Normally classified as long-term assets
Amounts owed to employees for salaries or wages are
reported as a current liability.
Current liabilities related to employee compensation may
BASIC EARNINGS PER SHARE
Earnings per share indicates the income earned by each share
of common stock.
Companies report earnings per share only for common stock.
When the income statement contains intermediate
components, such as discontinued operati
When the carrying amount of an asset is not recoverable, a
company records a write-off referred to as an impairment.
1. Review events for possible impairment
2. Recoverability Test
3. Fair Value Test
P12-5 (Goodwill, Impairment) On July 31, 2014, Mexico Company paid
to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the
following balance sheet at the time of the acquisition.
P12-2 (Accounting for Patents) Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a
precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products
and processes it develops. Instead, it conducts r
CLAS FINAL REVIEW
1. ABC Inc. produces widgets using two inputs. ABCs production function is F(x1, x2) = 10x11/2 + 300x2,
where x1 is the number of units of input one per week and x2 is the number of units of input two per
week. Input one costs $4 pe
CLAS MIDTERM 1 REVIEW
U = 6
U = 4
U = 2
a. Write the utility function that corresponds to the graph
b. Solve for the demand functions for x1 and x2
c. Prove demand for x1 is scale invariant (homogenous of degree zero)
VALUATION OF PROPERTY, PLANT,
Companies should record property, plant, and equipment:
at the fair value of what they give up or
at the fair value of the asset received,
whichever is more clearly evident.
VALUATION OF PP&E
Accounting for Convertible Debt
Convertible bonds can be changed into other corporate
securities during some specified period of time after
Benefit of a Bond (guaranteed interest and principal)
Privilege of Exchanging it fo
DEPRECIATIONMETHOD OF COST
Depreciation is the accounting process of allocating the cost
of tangible assets to expense in a systematic and rational
manner to those periods expected to benefit from the use of
Allocating costs of long-