Assignment:
Review the book: Intermediate accounting by Wiley binder
Codification Exercises
If your school has a subscription to the FASB Codification, go to https://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.
CE15-1 Access the glossary ("Master Glossary") to answer the following.
(a) What is a "convertible security"?
(b) What is a "stock dividend"?
(c) What is a "stock split"?
(d) What are "participation rights"?
CE15-2 At what percentage point can the issuance of additional shares still qualify as a stock dividend, as opposed to a stock split?
CE15-3 A company plans to issue shares and wants to know the SEC's stance on the accounting treatment for the costs of issuing stock. Can these costs be deferred, or must they be expensed immediately?
CE15-4 If a company chooses to purchase its own shares and then either (1) retires the repurchased shares and issues additional shares, or (2) resells the repurchased shares, can a gain or loss be recognized by the company? Why or why not?
Codifi cation Research Case
Recall from Chapter that 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 preferred stock issue to help finance this expansion in operations. The company is leaning toward participating preferred stock 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 ton its capital structure.
Instructions
If your school has a subscription to the FASB Codification, in and prepare responses to the following. Provide Codification references for your responses.
LEARNING OBJECTIVE
Compare the accounting procedures for stockholders' equity under GAAP and IFRS.
IFRS Insights
The primary IFRS related to stockholders' equity are IAS 1 ("Presentation of Financial Statements"),
IAS 32 ("Financial Instruments: Presentation"), and IAS 39 ("Financial Instruments: Recognition and Measurement").
RELEVANT FACTS
Following are the key similarities and differences between GAAP and IFRS related to stockholders' equity.
Similarities
• The accounting for the issuance of shares and purchase of treasury stock are similar under both IFRS and GAAP.
• The accounting for declaration and payment of dividends and the accounting for stock splits are similar under both IFRS and GAAP.
Differences
• Major differences relate to terminology used, introduction of concepts such as revaluation surplus, and presentation of stockholders' equity information.
• Many countries have different investor groups than the United States. For example, in Germany, financial institutions like banks are not only the major creditors but often are the largest shareholders as well. In the United States and the United Kingdom, many companies rely on substantial investment from private investors.
• The accounting for treasury share retirements differs between IFRS and GAAP. Under GAAP, a company has three options: (1) charge the excess of the cost of treasury shares over par value to retained earnings, (2) allocate the difference between paid-in capital and retained earnings, or (3) charge the entire amount to paid-in capital. Under IFRS, the excess may have to be charged to paid-in capital, depending on the original transaction related to the issuance of the shares.
• The statement of changes in equity is usually referred to as the statement of stockholders' equity (or shareholders' equity) under GAAP.
• Both IFRS and GAAP use the term retained earnings. However, IFRS relies on the term "reserve" as a dumping ground for other types of equity transactions, such as other comprehensive income items as well as various types of unusual transactions related to convertible debt and share option contracts. GAAP relies on the account Accumulated Other Comprehensive Income (Loss). We also use this account in the discussion below, as it appears this account is gaining prominence within the IFRS literature.
(a) Identify the authoritative literature that addresses disclosure of information about capital structure.
(b) Find definitions of the following:
(1) Securities.
(2) Participation rights.
(3) Preferred stock.
(c) What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.