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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.

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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

(Conversion of Bonds) Vargo Company has bonds payable outstanding in the amount of \(500,000, and the Premium on Bonds Payable account has a balance of \)7,500. Each \(1,000 bond is convertible into 20 shares of preferred stock of parvalue of \)50 per share. All bonds are converted into preferred stock.

E16-28 (L05) (EPS with Warrants) Howat Corporation earned \(360,000 during a period when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of \)15 per share during the period. Also outstanding were 15,000 warrants that could be exercised to purchase one share of common stock for $10 for each warrantexercised.

Instructions

(a) Are the warrants dilutive?

(b) Compute basic earnings per share.

(c) Compute diluted earnings per share.

Accounting for Restricted Stock) Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2017. The stock has a fair value of \(120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is \)5. At December 31, 2018, the fair value of the stock is $145,000.

Instructions

(a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018.

(b) On March 4, 2019, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

(Weighted-Average Number of Shares) Newton Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newtonโ€™s common stock activities.

1. Number of common shares issued and outstanding at December 31, 2015 2,000,000

2. Shares issued as a result of a 10% stock dividend on September 30, 2016 200,000

3. Shares issued for cash on March 31, 2017 2,000,000Number of common shares issued and outstanding at December 31, 2017 4,200,000

4. A 2-for-1 stock split of Newtonโ€™s common stock took place on March 31, 2018

Instructions

(a) Compute the weighted-average number of common shares used in computing earnings per common share for 2016 on the 2017 comparative income statement.

(b) Compute the weighted-average number of common shares used in computing earnings per common share for 2017 on the 2017 comparative income statement.

(c) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2017 on the 2018 comparative income statement.

(d) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2018 on the 2018 comparative income statement

Bedard Corporation reported net income of \(300,000 in 2017 and had 200,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at \)10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.

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