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Over what period of time should compensation cost be allocated?
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What date or event does the profession believe should be used in determining the value of a stock option? What arguments support this position?
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Cordero Corporation has an employee stock-purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15 shares on each subsequent anniversary date. The purchase price is set at the market price on the date purchased and no commission is charged. Discuss whether this plan would be consideredcompensatory.
Briefly explain the accounting requirements for stock compensation plans under GAAP.
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What are stock rights? How does the issuing company account for them?
On July 1, 2014, Roberts Corporation issued $3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for $30 one share of $1 par value common stock at any time during the next 10 years. The bonds were sold for $3,000,000. The value of the warrants at the time of issuance was $100,000. Prepare the journal entry to record this transaction.
Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment date. At that time, the market price of the debentures is 104, and the common stock is selling at $14 per share (par value $10). The company records the conversion as follows.
\r\nBonds Payable 1,000,000
\r\nDiscount on Bonds Payable 40,000
\r\nCommon Stock 800,000
\r\nPaid-in Capital in Excess of Par—
\r\nCommon Stock 160,000
\r\nDiscuss the propriety of this accounting treatment.
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What are the arguments for giving separate accounting recognition to the conversion feature of debentures?
Explain how the conversion feature of convertible debt has a value (a) to the issuer and (b) to the purchaser.
Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of $160 per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp. recorded the $160,000 premium as a reduction of paid-in capital. Comment on Bridgewater’s treatment of the $160,000 “sweetener.”
Discuss the similarities and the differences between convertible debt and debt issued with stock warrants.
Briefly explain why corporations issue convertible securities.
What is meant by a dilutive security?
The following note related to stockholders’ equity was reported in Wiebold, Inc.’s annual report.
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Instructions
\r\n(a) What is the significance of the date of record and the date of distribution?
\r\n(b) Why might Wiebold have declared a 3-for-2 for stock split?
\r\n(c) What impact does Wiebold’s stock split have on (1) total stockholders’ equity, (2) total par value,
\r\n(3) outstanding shares, and (4) book value per share?
Kellogg Company is the world’s leading producer of ready-to-eat cereal products. In recent years, the company has taken numerous steps aimed at improving its profitability and earnings per share. Presented below are some basic facts for Kellogg.
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Instructions
\r\n(a) What are some of the reasons that management purchases its own stock?
\r\n(b) Explain how earnings per share might be affected by treasury stock transactions.
\r\n(c) Calculate the ratio of debt to assets for 2010 and 2011, and discuss the implications of the change.
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The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf.
\r\nInstructions
\r\nRefer to M&S’s financial statements and the accompanying notes to answer the following questions.
\r\n(a) What is the par or stated value of M&S’s preference shares?
\r\n(b) What is the par or stated value of M&S’s ordinary shares?
\r\n(c) What percentage of M&S’s authorized ordinary shares was issued at 31 March 2012?
\r\n(d) How many ordinary shares were outstanding at 31 March 2012, and 2 April 2011?
\r\n(e) What was the pound amount effect of the cash dividends on M&S’s equity?
\r\n(f) What is M&S’s return on ordinary share equity for 2012 and 2011?
\r\n(g) What is M&S’s payout ratio for 2012 and 2011?
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Hincapie Co. (a specialty bike-accessory manufacturer) is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a preference share issue to help finance this expansion in operations. The company is leaning toward preference shares because ownership will not be diluted, but the investors will get an extra dividend if the company does well. The company management wants to be certain that its reporting of this transaction is transparent to its current shareholders and wants you to research the disclosure requirements related to its capital structure.
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\r\nAccess the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)
\r\n(a) Identify the authoritative literature that addresses disclosure of information about capital structure.
\r\n(b) What information about share capital must companies disclose? Discuss how Hincapie should report the proposed preference share issue.
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Teller Corporation’s post-closing trial balance at December 31, 2014, was as follows.
\r\nIFRS Insights 879
\r\nTELLER CORPORATION
\r\nPOST-CLOSING TRIAL BALANCE
\r\nDECEMBER 31, 2014
\r\nDr. Cr.
\r\nAccounts payable $ 310,000
\r\nAccounts receivable $ 480,000
\r\nAccumulated depreciation—building and equipment 185,000
\r\nAllowance for doubtful accounts 30,000
\r\nBonds payable 700,000
\r\nBuilding and equipment 1,450,000
\r\nCash 190,000
\r\nDividends payable on preference shares—cash 4,000
\r\nInventories 560,000
\r\nLand 400,000
\r\nPrepaid expenses 40,000
\r\nRetained earnings 201,000
\r\nShare capital—ordinary ($1 par value) 200,000
\r\nShare capital—preference ($50 par value) 500,000
\r\nShare premium—ordinary 1,000,000
\r\nShare premium—treasury 160,000
\r\nTreasury shares—ordinary at cost 170,000
\r\nTotals $3,290,000 $3,290,000
\r\nAt December 31, 2014, Teller had the following number of ordinary and preference shares.
\r\nOrdinary Preference
\r\nAuthorized 600,000 60,000
\r\nIssued 200,000 10,000
\r\nOutstanding 190,000 10,000
\r\nThe dividends on preference shares are $4 cumulative. In addition, the preference shares have a preference in liquidation of $50 per share.
\r\nInstructions
\r\nPrepare the equity section of Teller’s statement of financial position at December 31, 2014.
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Weisberg Corporation has 10,000 shares of $100 par value, 6%, preference shares and 50,000 ordinary shares of $10 par value outstanding at December 31, 2014.
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\r\nAnswer the questions in each of the following independent situations.
\r\n(a) If the preference shares are cumulative and dividends were last paid on the preference shares on
\r\nDecember 31, 2011, what are the dividends in arrears that should be reported on the December 31, 2014, statement of financial position? How should these dividends be reported?
\r\n(b) If the preference shares are convertible into seven shares of $10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
\r\n(c) If the preference shares were issued at $107 per share, how should the preference shares be reported in the equity section?
Ravonette Corporation issued 300 shares of $10 par value ordinary shares and 100 shares of
\r\n$50 par value preference shares for a lump sum of $13,500. The ordinary shares have a market price of $20 per share, and the preference shares have a market price of $90 per share.
\r\nInstructions
\r\nPrepare the journal entry to record the issuance
Wilco Corporation has the following account balances at December 31, 2014.
\r\nShare capital—ordinary, $5 par value $ 510,000
\r\nTreasury shares 90,000
\r\nRetained earnings 2,340,000
\r\nShare premium—ordinary 1,320,000
\r\nInstructions
\r\nPrepare Wilco’s December 31, 2014, equity section.
Kaymer Corporation issued 300 shares of $10 par value ordinary shares for $4,500. Prepare Kaymer’s journal entry.
Indicate how each of the following accounts should be classified in the equity section.
\r\n(a) Share Capital—Ordinary. (e) Share Premium—Treasury.
\r\n(b) Retained Earnings. (f) Share Capital—Preference.
\r\n(c) Share Premium—Ordinary. (g) Accumulated Other Comprehensive Income.
\r\n(d) Treasury Shares.
Explain each of the following terms: authorized ordinary shares, unissued ordinary shares, issued ordinary shares, outstanding ordinary shares, and treasury shares
Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain
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