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Issues in Financial Accounting (17)

PART II: Corporate Accounting Concepts and . Issues Lecture 17 Dilutive Securities and. Earnings per Share.1 Learning. Learning Objectives. Objectives. 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.2 Dilutive. Dilutive Securities. Securities and. and Earnings. Earnings Per. Per Share. Share. Dilutive Securities and Computing Earnings Per. Compensation Plans Share Debt and equity Simple capital structure Convertible debt Complex capital structure Convertible preferred stock Stock warrants Accounting for compensation.3 Debt. Debt and. and Equity. Equity Should companies report these instruments as a. liability or equity Convertible. Stock Options Preferred Stock. Securities.4 Accounting. Accounting for. for Convertible. Convertible Debt. Debt Bonds which can be changed into other corporate. securities are called convertible bonds. Benefit of a Bond (guaranteed interest and principal) +. Privilege of Exchanging it for Stock. (at the holder’s option). LO 1 Describe the accounting for the issuance, conversion,.5. and retirement of convertible securities. Accounting. Accounting for. for Convertible. Convertible Debt. Debt Two main reasons corporations issue convertibles: Desire to raise equity capital without giving up more. ownership control than necessary. Obtain common stock financing at cheaper rates LO 1 Describe the accounting for the issuance, conversion,.6. and retirement of convertible securities. Accounting. Accounting for. for Convertible. Convertible Debt. Debt At Time of Issuance. Convertible bonds recorded as straight debt issue, with. any discount or premium amortized over the term of the. debt LO 1 Describe the accounting for the issuance, conversion,.7. and retirement of convertible securities. Accounting. Accounting for. for Convertible. Convertible Debt. Debt Archer issued $4,000,000 par value, 7% convertible bonds at. 99 for cash. If the bonds had not included the conversion. feature, they would have sold for 95. Journal entry at date of issuance: Cash 3,960,000. Discount on bonds payable