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Chapter 16: Q2IFRS (page 896)

Question: Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for dilutive securities, stock-based compensation, and earnings per share.

Short Answer

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Answer

IFRS and U.S. GAAP follow similar model, dilutive securities, and earnings per share IFRS and U.S. GAAP are considerably something similar in the terms of accounting.

Under U.S. GAAP the proceeds of convertible debt are accounted as long-term debt. Whereas under IFRS, convertible bonds are divided into equity and debt component.

Step by step solution

01

Introduction to GAAP-

Generally accepted accounting principles (GAAP) are accounting standards and rules for financial reporting. It is made to give a worldwide structure for how firms set up their financial statements.

02

Some of the similarities and differences between GAAP and IFRS-

All the proceeds of convertible debt are recorded as long-term debt under U.S. GAAP. Under IFRS, convertible bonds are divided into parts or separated into equity component the value of the conversion option of the bond issue and the debt component.

The FASB permits businesses to challenge the presumption that contracts that can be fulfilled in either cash or shares will be settled in shares, which is a little variance in EPS reporting. In this circumstance, share settlement is required under IFRS.

Other EPS difference associated to the treasury stock method and how the revenue from cessation of a liability should be recorded for and how to calculate from the weighted average of contingently issueable shares.

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Most popular questions from this chapter

What type of earnings per share presentation is required in a complex capital structure?

Archer Inc. 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. Prepare the journal entry to record the issuance of the bonds.

Where can authoritative IFRS be found related to dilutive securities, stock-based compensation, and earnings per share?

(Issuance, Exercise, and Termination of Stock Options) On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company鈥檚 \(10 par common stock at \)25 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be \(350,000.On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was \)35 per share on this date.On March 31, 2020, 12,000 options were exercised when the market price of the common stock was $40 per share.

Instructions

Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020.

(Issuance of Bonds with Detachable Warrants) On September 1, 2017, Sands Company sold at 104 (plus accrued interest) 4,000 of its 9%, 10-year, \(1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of \)15 per share. Shortly after issuance, the warrants were quoted on the market for \(3 each. No fair value can be determined for the Sands Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of \)30,000 were incurred.

Prepare in general journal format the entry to record the issuance of the bonds
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