Problem Solving Survival Guide for Intermediate Accounting, 15th Edition, Instructor's Manual: Volume II: Chapters 15-24

CHAPTER 16

DILUTIVE SECURITIES AND EARNINGS PER SHARE

OVERVIEW

During the past four to five decades, many corporations have engaged in heavy merger activity. These business combinations have utilized an increasing amount of dilutive securities such as convertible bonds, convertible preferred stocks, and stock warrants. The accounting procedures for each of these are discussed in this chapter.

Executives of corporations are usually given some type of stock-based compensation. The type of plan used can materially affect the corporation's financial statements. Accounting procedures for employee stock options and other stock-based compensation plans such as restricted-stock plans are discussed in this chapter.

Earnings per share (EPS) is typically the most widely quoted financial ratio. The computation of earnings per share is complicated by situations where dilutive securities, as well as common stock, are outstanding. EPS computations are also discussed in this chapter.

SUMMARY OF LEARNING OBJECTIVES

  1. Describe the accounting for the issuance, conversion, and retirement of convertible debt securities. The method for recording convertible bonds at the date of issuance follows that used to record straight (nonconvertible) debt issues. Companies amortize any discount or premium that results from the issuance of convertible bonds, assuming the bonds will be outstanding to maturity. If bonds are converted into other securities, the principal accounting problem is to determine the amount ...