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Intermediate ACC 2

Chapters 16&17

What is a convertible security? Both debt and equity when exercised reduce earnings per share
Accounting For Convertible Debt (at issuance) use the method to record straight debt issues.None of the proceeds are recorded as equity.Amortize to maturity date any discount or premium
Accounting For Convertible Debt (at conversion) Book Value. Debit: Bonds payable and premium. Credit: Common Stock & paid in capital- excess of par
Accounting For Convertible Debt (induced conversion) Debit: Debt conversion Expense & Bonds Payable Credit: Common Stock, Paid in Capital in excess of par, & cash
Sweetner used to induce conversion, an expense of the current period
Accounting For Convertible Debt (at retirement) need to recognize a gain or loss (Cash aquisition price of debt - carrying amount)
Induced Conversions Fair value of additional securities or other consideration. reduces interest cost & improves debt to equity ratio
Accounting for Convertible Preferred Stock ~considered equity ~don't recognize gain or loss ~uses book value
Accounting for Convertible Preferred Stock (at exercise) Debit: Preferred Stock & Paid in Capital in Excess of par (if par value of common stock exceeds book value also debit retained earnings) Credit: Common Stock
Stock Warrants allocate portions based on fair value
Stock Warrant Sale Debit: Cash & discount Credit: Bonds Payable & premium
Stock Warrant Paid in Capital Debit: Cash Credit: Paid in Capital- Stock Warrant
Stock Warrant Exercised Debit: Cash & Paid in Capital- Stock Warrants Credit: Common Stock & Paid in Capital in Excess of Par
Stock Options Expense based on fair value of the options expected to vest on the grant date. no adjustments made after grant date
Allocating Stock Option Expense calculate time between grant date & vesting period. recognize expense in the periods employees perform service
service period vesting period
Created by: FML2012



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