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Communication Case 18–10 Should the present two-category distinction between liabilities and equity be retained? Group interaction. ● LO1
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:
View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.
One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.
Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Communication-Case-18-10
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Communication Case 18–10 Should the present two-category distinction between liabilities and equity be retained? Group interaction. ● LO1
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:
View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.
One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.
Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Communication-Case-18-10
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Ethics Case 19–7 International Network Solutions ● LO6
International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.
One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane’s office.
Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn: To begin this year, you mean?
Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She’s probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year. Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical? 3. Who would be affected if the proposal is implemented? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Ethics-Case-19-7
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Ethics Case 19–7 International Network Solutions ● LO6
International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.
One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane’s office.
Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn: To begin this year, you mean?
Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She’s probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year. Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical? 3. Who would be affected if the proposal is implemented? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Ethics-Case-19-7
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E 18–18 - Brenner-Jude Corporation -Transactions affecting retained earnings ● LO6 LO7
Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2011. At January 1, 2011, the corporation had outstanding 105 million common shares, $1 par per share.
Required:
1. From the information provided by the account changes you should be able to recreate the transactions that affected Brenner-Jude’s retained earnings during 2011. Prepare the journal entries that Brenner-Jude must have recorded during the year for these transactions.
2. Prepare a statement of retained earnings for Brenner-Jude for the year ended 2011. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-18-18
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E 18–18 - Brenner-Jude Corporation -Transactions affecting retained earnings ● LO6 LO7
Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2011. At January 1, 2011, the corporation had outstanding 105 million common shares, $1 par per share.
Required:
1. From the information provided by the account changes you should be able to recreate the transactions that affected Brenner-Jude’s retained earnings during 2011. Prepare the journal entries that Brenner-Jude must have recorded during the year for these transactions.
2. Prepare a statement of retained earnings for Brenner-Jude for the year ended 2011. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-18-18
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E 18–24 - Softech Canvas Goods - Profitability ratio ● LO1
Comparative balance sheets for Softech Canvas Goods for 2011 and 2010 are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth.
Required:
1. Determine the return on shareholders’ equity for 2011.
2. What does the ratio measure? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-18-24
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E 18–24 - Softech Canvas Goods - Profitability ratio ● LO1
Comparative balance sheets for Softech Canvas Goods for 2011 and 2010 are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth.
Required:
1. Determine the return on shareholders’ equity for 2011.
2. What does the ratio measure? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-18-24
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E 19–2 - VKI Corporation - Restricted stock award plan ● LO1
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-2
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E 19–2 - VKI Corporation - Restricted stock award plan ● LO1
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-2
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E 19–5 - American Optical Corporation - Stock options ● LO2
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2011, that permit executives to acquire 4 million of the company’s $1 par common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry to record the award of options on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-5
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E 19–5 - American Optical Corporation - Stock options ● LO2
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2011, that permit executives to acquire 4 million of the company’s $1 par common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry to record the award of options on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-5
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E 19–9 - Washington Distribution - Employee share purchase plan ● LO3
In order to encourage employee ownership of the company’s $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share.
Required:
Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-9
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E 19–9 - Washington Distribution - Employee share purchase plan ● LO3
In order to encourage employee ownership of the company’s $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share.
Required:
Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-9
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E 19–24 EPS; concepts; terminology ● LO5 through LO13
Listed below are several terms and phrases associated with earnings per share. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-24
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E 19–24 EPS; concepts; terminology ● LO5 through LO13
Listed below are several terms and phrases associated with earnings per share. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Exercise-19-24
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P 18–5 Shareholders’ equity transactions; statement of shareholders’ equity ● LO6 through LO8 (see included excel file)
Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2011–2013. At December 31, 2010, the corporation’s accounts included:
a. November 1, 2011, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
b. On March 1, 2012, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.6 million, but were purchased two years previously for $1.3 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.
c. On July 12, 2012, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $21 per share). Cash was paid in lieu of fractional shares representing 250,000 equivalent whole shares.
d. On November 1, 2012, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
e. On January 15, 2013, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $22 per share.
f. On November 1, 2013, the board of directors declared a cash dividend of $.65 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
Required:
1. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions.
2. Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period ($ in 000s). Net income was $330 million, $395 million, and $455 million for 2011, 2012, and 2013, respectively. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Problem-18-5
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P 18–5 Shareholders’ equity transactions; statement of shareholders’ equity ● LO6 through LO8 (see included excel file)
Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2011–2013. At December 31, 2010, the corporation’s accounts included:
a. November 1, 2011, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
b. On March 1, 2012, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.6 million, but were purchased two years previously for $1.3 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.
c. On July 12, 2012, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $21 per share). Cash was paid in lieu of fractional shares representing 250,000 equivalent whole shares.
d. On November 1, 2012, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
e. On January 15, 2013, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $22 per share.
f. On November 1, 2013, the board of directors declared a cash dividend of $.65 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
Required:
1. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions.
2. Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period ($ in 000s). Net income was $330 million, $395 million, and $455 million for 2011, 2012, and 2013, respectively. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-4-Problem-18-5
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