كتاب الأسهم كتاب الطبعة ال 16

كتاب خيارات الأسهم.

الطبعة ال 18.

من قبل أليسون رايت، أليسا جيه بيكر، وبام تشيرنوف.

هذه هي النسخة المطبوعة، ويتم تطبيق رسوم الشحن. كما أنها متوفرة في نسخة رقمية مع أي رسوم الشحن.

35،00 دولار لأعضاء المجلس الوطني للمرأة؛ $ 50.00 لغير الأعضاء.

سيتم تطبيق خصم بنسبة 20٪ إذا كنت عضوا (أو انضم الآن) وطلب 10 أو أكثر من هذا المنشور. إذا كنت بحاجة إلى طلب أكثر من الحد الأقصى في القائمة المنسدلة أدناه، قم بتغيير الكمية بمجرد إضافتها إلى سلة التسوق الخاصة بك.

- تيم سباركس، الرئيس، كومبنزيا، Inc.

- روبرت H. (باف) ميلر، كولي غودوارد كرونيش لب.

تفاصيل النشر.

تنسيق: كتاب مثالي، 392 صفحة.

الأبعاد: 6 × 9 بوصة.

الطبعة: 18 (آذار (مارس) 2017)

الحالة: في المخزون.

بدف من جدول محتويات الكتاب الشامل.

الجزء الأول: نظرة عامة على خيارات الأسهم والخطط ذات الصلة.

الفصل الأول: أساسيات خيارات الأسهم.

الفصل 2: ​​المعاملة الضريبية لخيارات الأسهم غير النظامية.

الفصل الثالث: المعاملة الضريبية لخيارات الأسهم الحافزة.

الفصل الرابع: تصميم الخطة وإدارتها.

الفصل الخامس: خطط شراء الأسهم للموظفين.

الفصل 6: الاتجاهات في تعويضات الأسهم: نظرة عامة.

الجزء الثاني: المسائل التقنية.

الفصل السابع: تمويل شراء خيارات الأسهم.

الفصل الثامن: نظرة عامة على قضايا قانون الأوراق المالية.

الفصل التاسع: قضايا الامتثال لقانون الضرائب.

الفصل العاشر: قضايا المحاسبة الأساسية.

الفصل 11: المعاملة الضريبية للخيارات المتعلقة بالوفاة والطلاق.

الفصل 12: قضايا خيارات ما بعد الإنهاء.

الجزء الثالث: القضايا الراهنة.

الفصل 13: المبادرات التشريعية والتنظيمية المتعلقة بخيارات الأسهم: التاريخ والحالة.

الفصل 14: عرض الخيارات: توقيت منح الخيار.

الفصل الخامس عشر: القضايا التي تؤثر على تعويضات حقوق الملكية.

الفصل 16: الخيارات القابلة للتحويل.

الفصل 17: ريلوادس، الخضرة، إعادة التسعير، والتبادلات.

التذييل 1: تصميم خطة خيارات الأسهم على نطاق واسع.

التذييل 2: المصادر الأولية.

من الفصل 3، "المعاملة الضريبية لخيارات الأسهم الحافزة" (حذفت الحواشي السفلية)

من الفصل 10، "قضايا المحاسبة الأساسية"

من الفصل 16 "ريلودس، إيفرغرينز، إعادة تسعير، والتبادلات" (الحواشي حذفت)

ومع ذلك، يجب على الجهة المصدرة أن تفي بعدد من العوائق أمام تقديم عرض صرف صالح، بما في ذلك توفير بعض المواد المالية لكل من الموظفين والمجلس الأعلى للتعليم، وإيداع بطاقات سيك المختلفة، وإجراء مكالمات المحللين (حيثما كان ذلك مناسبا)، وتوفير فترة سحب عند أقل 20 أيام عمل إلى أوفيريس.

منشورات أخرى من نسو بشأن تعويض حقوق الملكية.

قد تكون مهتما في منشوراتنا الأخرى في هذا المجال. انظر، على سبيل المثال:

المحاسبة عن تعويض حقوق الملكية.

دليل لمحاسبة خيارات الأسهم، إسبس، سارز، الأسهم المقيدة، وغيرها من هذه الخطط.

مجموعة أدوات إدارة تعويضات الأسهم الخاصة.

قوائم المراجعة والقوالب لمساعدة الشركات الخاصة على إدارة خطط الإنصاف وتفويض المهام.

غس: مخططات الأسهم العالمية.

يناقش قضايا مثل عمليات المنح والمعاملات والضرائب للشركات العامة التي تمنح تعويضات الأسهم خارج الولايات المتحدة.

تعويضات الأسهم القائمة على الأداء.

يوفر البصيرة اللازمة لإنشاء وإدارة برنامج الإنصاف الأداء الناجح.

البقاء على علم.

لدينا مرتين شهريا تحديث ملكية الموظف يبقيك على رأس الأخبار في هذا المجال، من التطورات القانونية لكسر البحوث.

شارك هذه الصفحة.

رابط لنا.

نسيو العضوية كتيب.

قراءة كتيب العضوية لدينا (بدف) وتمريرها إلى أي شخص مهتم بملكية الموظفين.

صحيفة حقائق خيارات الموظفين.

ما هو خيار الأسهم؟

خيارات الأسهم وملكية الموظفين.

اعتبارات عملية.

البقاء على علم.

لدينا مرتين شهريا تحديث ملكية الموظف يبقيك على رأس الأخبار في هذا المجال، من التطورات القانونية لكسر البحوث.

منشورات ذات صلة.

قد تكون مهتمة في منشوراتنا في هذا المجال الموضوع. انظر، على سبيل المثال:

خطط تعويض الأسهم النموذجية.

وثائق خطة عينة وتفسيرات موجزة لخيار الأسهم الموظفين وخطط شراء الأسهم (بما في ذلك سد).

البقاء خاصة: خيارات السيولة للشركات الريادية.

يصف كيف يمكن لمالكي الشركات الريادية تحقيق السيولة دون الذهاب إلى الجمهور أو بيع الشركة.

تعويضات حقوق الملكية للشركات ذات المسؤولية المحدودة (ش. م.م)

دليل إلنشاء ترتيبات تعويض األسهم للشركات ذات المسؤولية المحدودة) ليك (. يتضمن وثائق خطة النموذج.

مصادر األوراق املالية ملكافأة حقوق امللكية، 2017 إد.

كتاب مع وثائق المصدر لأولئك الذين يعملون مع تعويض الأسهم.

سيبي امتحان الدليل المرجعي السريع.

دليل مرجعي سريع لتعويض الأسهم في شكل أربع أوراق مغلفة على الوجهين.

بدائل الأسهم: الأسهم المقيدة، جوائز الأداء، الأسهم فانتوم، سارس، وأكثر من ذلك.

دليل مفصل لبدائل التعويض عن حقوق الملكية. يتضمن وثائق خطة نموذجية مشروحة في تنسيقات معالجة النصوص.

شارك هذه الصفحة.

رابط لنا.

نسيو العضوية كتيب.

قراءة كتيب العضوية لدينا (بدف) وتمريرها إلى أي شخص مهتم بملكية الموظفين.

السؤال: الكتاب هو أسس الإدارة المالية الطبعة 16 تم إدراج الكوا في الجدول 13-2 ك.

الكتاب هو أسس الإدارة المالية الطبعة ال 16.

وقد أدرجت شركة ألكوا في الجدول 13-2 كشركة لديها بيتا عالية النسبية (مقياس لتقلب أسعار الأسهم). تنتج شركة ألكوا منتجات الألمنيوم والألومنيوم. انتقل إلى موقعها الإلكتروني في ألكوا، واتبع هذه الخطوات.

ضمن "حول"، حدد "التقرير السنوي". نزل أحدث تقرير سنوي. قم بالتمرير وصولا إلى "البيانات المالية المحددة" (صفحة 45).

واحدة من خصائص أسهم بيتا عالية هي أنها غالبا ما يكون أداء الأرباح المتقلبة. دعونا تحقق من الكوا. حساب التغير السنوي في "الدخل المخفف من العمليات المستمرة" من سنة إلى أخرى لكل من السنوات الخمس. هل يبدو أن الأرباح متقلبة؟

ويتم تشجيع الشركات التي لديها مستويات عالية من البيتا ت وأداء غير متناسق على إبقاء نسب ديونها منخفضة (أقل من 50 في المائة). حساب نسبة الديون طويلة الأجل إلى إجمالي الأصول لكل من السنوات الخمس لشركة ألكوا. كيف يبدو النمط لك؟

حلول لكامل تش 16 طبعة جديدة - كيسو ويغاندت.

انقر لتعديل تفاصيل المستند.

كيزو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة الكندية العاشرة الفصل 16 الأدوات المالية تصنيف التسمية التصنيف جدول المواضيع تمارين تمارين تمارين مشاكل مهام الكتابة 1. فهم المشتقات 1، 2، 3 1، 2، 5 1، 2، 3، 4 6، 7، 8، 9 2. كيفية حساب المشتقات 1، 2، 3، 4، 5 1، 2، 3، 4، 5 1، 2، 3، 4، 5، 6 9 3. المحاسبة عن الأدوات الهجينة / المركبة 6 و 7 و 8 و 9 و 10 و 11 و 12 و 13 و 14 و 15 و 16 5 و 6 و 7 و 8 و 9 و 10 و 11 و 12 و 13 و 14 5 ، 6، 7، 8، 9 1، 2، 4. خطط تعويضات الأسهم 17، 18 5. التعويضات على أساس الأسهم 19 15، 16، 17 5، 6، 10 2، 5 6. الاختلافات بين المعرفين ذوي الاحتياجات الخاصة والمعيار الدولي للتقارير المالية 2، ، 10، 11، 12، 14، 16، 20، 21 3، 5، 7، 19، 20 6، 7، 12 4، 5، 7 5 11، 12 3، 4، 5، 9 * 7. الأدوات المشتقة للتحوط * 8. محاسبة التحوط * 9. سارس 10 18 و 19 و 20 11 و 12 6 20 و 21 و 22 21 و 22 و 23 * 10. نماذج تسعير الخيارات 23 * يتم تناول هذه المادة في ملحق للفصل. دليل الحلول 16-1 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية تصنيف التسمية جدول (تابع) ملاحظة: إذا كان طلابك حل المواد نهاية الفصل باستخدام آلة حاسبة مالية أو جدول البيانات إكسل بدلا من الجداول بف، يرجى ملاحظة أنه سيكون هناك اختلاف في المبالغ. إكسيل والآلات الحاسبة المالية تعطي نتيجة أكثر دقة بدلا من الجداول بف. وقد تم إعداد المبالغ المستخدمة لإعداد إدخالات دفتر اليومية في حلول من نتائج الحسابات التي تم التوصل إليها باستخدام الجداول بف. دليل الحلول 16-2 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية خصائص التخصيص الجدول الوصف المعاملات المشتقة. المعاملات المشتقة. شراء مشتقات االلتزامات المشتملة على األسهم الخاصة للمنشأة إصدار وتحويل السندات. إصدار السندات وتحويلها. تحويل السندات. تحويل السندات. تحويل السندات والحقوق المنتهية الصلاحية تحويل السندات مستوى الوقت الصعوبة (دقيقة) بسيط 10-15 بسيط 10-15 بسيط 10-15 بسيط 10-15 معتدل 20-25 معتدل 20-25 معتدل 20-25 بسيط 10-20 بسيط 10 -20 معتدلة 20-25 E16-11 E16-12 تحويل السندات. تحويل السندات. مجمع بسيط 10-20 30-40 E16-13 E16-14 إصدار سندات مع أوامر للانفصال. إصدار، ممارسة، وإنهاء خيارات الأسهم. إصدار، ممارسة، وإنهاء خيارات الأسهم. إصدار السندات بأوامر قابلة للفصل. إصدار وممارسة خيارات الأسهم. التدفق النقدي التحوط. التدفق النقدي التحوط. تحوط القيمة العادلة. حقوق تقدير الأسهم. حقوق تقدير الأسهم. حقوق تقدير الأسهم. عقد خيار الاتصال - تم شراؤها. عقد خيار المكالمة - مكتوب. وضع عقد الخيار - أداة مشتقة. المشتقات المشتملة على إدخالات الأسهم الخاصة للمنشأة لمختلف الأدوات المالية. تصحيح إصدار السندات، وحساب العائد. إصدار مذكرات بأوامر. سندات، مذكرات، حقوق التحويل. قرض، سوب، وخطة خيار شراء الأسهم الآجلة. مقايضة أسعار الفائدة للتحوط من القيمة العادلة. تغطية التدفقات النقدية - العقود الآجلة. تحوط القيمة العادلة - خيار الشراء. بسيط معتدل 10-15 25-35 معتدل 10-15 معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل معتدل 10-15 15-25 15-20 15-20 20-25 15-25 15-25 25-30 30-40 30-40 30-40 30-40 35-40 35-40 بسيط معتدل معتدل معقد مجمع مجمع مجمع 15-20 30-35 30-35 30-35 35-45 40-50 40-50 البند E16-1 e16-2 e16-3 e16-4 e16-5 e16-6 e16-7 e16-8 e16-9 e16-10 e16-15 e16-16 e16-17 * e16-18 * e16-19 * e16-20 * e16 -21 * E16-22 * E16-23 P16-1 P16-2 P16-3 P16-4 P16-5 P16-6 P16-7 P16-8 P16-9 P16-10 * P16-11 * P16-12 * P16 -13 دليل الحلول 16-3 الفصل 16 كيسو، ويغاندت، وارفيلد، ويونغ، ويسكونك، وكونوميك المحاسبة المتوسطة، الطبعة الكندية العاشرة الحلول للممارسين المختصين ممارسة مختصرة 16-1 ينبغي أن توفر شركة صافير ريو المحدودة خيار الاتصال بتكلفة الاستحواذ (500 دولار) وتسجيلها كمشتقات - الأصول / الخصوم المالية. سافر ريو المحدودة ليست ملزمة لممارسة الخيار وشراء الأسهم. يتم قياس االستثمار بالقيمة العادلة في تاريخ التقرير مع إدراج أرباح أو خسائر، إن وجدت، في صافي الدخل للفرق بين التكلفة والقيمة السوقية. ينتج عن خيار املكاملات هذا مخاطر إضافية من الطرف اآلخر / االئتمان) خطر عدم قدرة الطرف اآلخر على الوفاء بجانبه من الصفقة (ومخاطر السيولة) اخملاطر التي لن يتمكن مقدمها من الحصول على املال ملمارسة العقد إذا كان العقد هو في المال). إذا تم شراء الخيار على أساس الصرف، فإن مخاطر الطرف المقابل تختفي. وبالإضافة إلى ذلك، لا يزال هناك خطر من أن الخيارات سوف تفقد القيمة (مخاطر السعر). لاحظ أنه بما أن هذا هو الخيار الذي تم شراؤه، سافر لديه الحق ولكن ليس الالتزام بممارسة الخيار على الرغم من أنها ترغب في ممارسة ذلك إذا كان العقد في المال في تاريخ التمرين. دليل الحلول 16-4 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-2 (أ) هذا الالتزام الشراء هو عقد تنفيذي يمكن تسويتها على أساس الصافي عن طريق دفع نقدا بدلا من أخذ تسليم التفاح. بموجب المعايير الدولية لإعداد التقارير المالية، لأن اليومية إنتاج المحدودة تعتزم على اتخاذ تسليم التفاح، يتم تعيين العقد على أنه "الاستخدام المتوقع" ولا تمثل كمشتقات، بدلا من ذلك، لا يتم التعرف على الصفقة حتى تسليم التفاح يحدث. في 1 أبريل 2014، اليومية إنتاج السجلات: الجرد. حسابات قابلة للدفع . 1،000 1،000) ب (حتت بند املخصصات املتاحة للبيع، يتم احتساب التزام الشراء عموما كعقد غير منفوض وال يتم االعتراف به حتى يتم تسليم البند غير املالي. لذلك اليومية إنتاج المحدودة لن حساب العقد كمشتقات. بدلا من ذلك، لن يتم الاعتراف الصفقة حتى تسليم التفاح يحدث. في 1 أبريل 2014، اليومية إنتاج السجلات: الجرد. حسابات قابلة للدفع . 1،000 1،000 (ج) يؤدي هذا العقد إلى مخاطر أسعار الإنتاج اليومي حيث أنها مقفلة بسعر وقد تتغير قيمة التفاح. ويحدد العقد التدفقات النقدية مع ذلك، لذا ال توجد مخاطر تدفق نقدي. كما يعرض هذا الكيان إلى مخاطر الطرف المقابل / االئتمان) مخاطر عدم مقدرة المورد على الوفاء بالعقد (ومخاطر السيولة) مخاطر عدم قدرة اإلنتاج اليومي على توفير األموال لدفع المورد ). دليل الحلول 16-5 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة الكندية العاشرة التمرين الاختياري 16-3 (أ) 1 يناير 2014 لا يوجد إدخال دفتر ضروري لأن القيمة العادلة للعقد الآجل ستكون $ 0. 15 يناير 2014 المشتقات - الموجودات المالية / المطلوبات. ربح . 35 35 (ب) يؤدي هذا العقد إلى مخاطر سعرية (نظرا لأن الجينسنغ قد وافقت على دفع سعر ثابت للولايات المتحدة الأمريكية وقد تتغير قيمة الدولار الأمريكي)، ومخاطر الائتمان / الطرف المقابل (بما أن الطرف الآخر في العقد قد لا تكون قادرة على الوفاء جانبها من الصفقة، والتي يتم تقديم الولايات المتحدة) وخطر السيولة (خطر أن الجينسنغ لن تكون قادرة على الخروج من الأموال لتسوية جانبهم من العقد أي تسليم C5 $، 280) لاحظ أن العقد يلغي مخاطر التدفق النقدي لأن الجهة تعرف بالضبط ما ستدفعه للولايات المتحدة الأمريكية. التمرين المختصر 16-4 يناير 2014 الودائع. السيولة النقدية . 25 25 يناير 2014 المشتقات - األصول المالية / المطلوبات الربح. دليل الحلول 16-6 35 35 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندي التمرين بريف 16-5 تواجه شركة بيسر المحدودة مشكلة عرض: إذا تم التعامل مع تكلفة $ 1000 من الخيار كاستثمار، على غرار تكلفة خيار شراء أسهم شركة أخرى؟ في هذه الصفقة، وافقت شركة بيسر المحدودة على إعادة شراء عدد ثابت من أسهم الشركة الخاصة مقابل مبلغ ثابت من الاعتبار. ينص معيار المحاسبة الدولي رقم 32 على أن هذا النوع من المعاملة "الثابتة الثابتة" سيتم عرضه كخفض من حقوق المساهمين وليس كاستثمار. هذا هو، على نحو فعال، التقاعد المحتمل للأسهم (أو الحصول على أسهم الخزينة، إذا كان ذلك مسموحا). التمرين الموجب 16-6 تعتبر هذه السندات التزاما دائما بالديون. تلتزم شركة جاميسون بتقديم مدفوعات حاملها على أساس الفائدة في تواريخ محددة وتمتد إلى المستقبل غير المحدد، ودفع أساسي للقيمة الاسمية للسند بعيد المدى إلى المستقبل. وسيتم اإلبالغ عن السندات في بيان المركز المالي لشركة جاميسون بالقيمة الحالية للقسط السنوي لدفعات الفائدة على مدى فترة السند المحسوب بسعر الفائدة السائد في السوق) في تاريخ اإلصدار (، متجاهلا القيمة المستقبلية للمبلغ األساسي) دفع. ونظرا لأن قيمة السندات الدائمة تدفع فقط بالالتزام التعاقدي بدفع الفوائد، فإنها ستصنف كدين طويل الأجل في بيان المركز المالي. لن یتم إعادة قیاسھا سنویا إلا إذا تم تصنیفھا ضمن خیار القیمة العادلة، وفي ھذه الحالة یتم إعادة تقییمھا بالقیمة العادلة والأرباح / الخسائر المحتجزة علی صافي الدخل. دليل الحلول 16-7 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-7 بموجب شروط الاتفاق مع المساهمين المفضلين، من المرجح جدا أن سيلكي المحدودة سوف تسترد الأسهم المفضلة قبل أن يتضاعف معدل توزيعات الأرباح بعد خمس سنوات. وبناء على ذلك، فإن عدم القيام بذلك سوف يؤدي إلى دفع حريري أرباحا عالية للغاية للمساهمين المفضلين. ولا يملك سيلكي سوى قدر ضئيل من التقدير أو عدم وجود سلطة تقديرية لتجنب دفع المبالغ النقدية لاسترداد الأسهم قبل نهاية السنة الخامسة، وهذا الالتزام المحتمل بتسليم النقد يخلق التزاما. وبناء على ذلك، ينبغي تصنيف الأسهم المفضلة كدين طويل الأجل في بيان المركز المالي. ونظرا ألن األسهم املفضلة تصنف كدين طويل األجل في بيان املركز املالي، فإن األرباح املعلن عنها واملدفوعة للمساهمني األفضل سيتم تصنيفها كمصروفات فوائد على بيان الدخل. وقد يكون من المستصوب فصل مبلغ توزيعات األرباح) المبلغ عنها كمصروف فوائد (المدفوع على األسهم الممتازة مع الفوائد المدفوعة على الديون األخرى. املمارسة اخلاصة 16-8 وفقا للمعايير الدولية للتقارير املالية، يتم تسجيل األسهم املفضلة كمطلوبات ألن مخصص التسوية الطارئة يستند إلى حدث خارج سيطرة الشركة. ومع ذلك، في إطار أسبي، سيتم احتساب الأسهم المفضلة كالتزام فقط عندما يكون من المرجح جدا أن صافي دخل الشركة سوف ينخفض ​​إلى أقل من 500،000 دولار في الفترة المالية المقبلة. وفي حالة عدم احتمال حدوث الحدث، يتم احتساب الأسهم المفضلة كحقوق ملكية. دليل الحلول 16-8 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة الكندية العاشرة ممارسة مختصرة 16-9 الحل هو نفسه للمعايير الدولية لإعداد التقارير المالية و أسبد. عندما تنص الحصة المفضلة على الاسترداد الإلزامي من قبل المصدر بمبلغ ثابت أو قابل للتحديد في تاريخ مستقبلي محدد أو قابل للتحديد أو يعطي لصاحب الحق الحق في مطالبة الجهة المصدرة باسترداد الحصة في أو بعد تاريخ محدد لمبلغ محدد أو قابل للتحديد ، يفي الصك بتعريف الالتزام المالي. وبناء على ذلك، ينبغي تصنيف الحصة المفضلة كدين طويل الأجل في بيان المركز المالي. دليل الحلول 16-9 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-10 (أ) المعاش الكهروضوئي 3 سنوات، 9٪، $ 50،000 $ 126،565 بف $ 1،000،000، في 3 سنوات، 9٪ 772،180 بف من عنصر الدين بحد ذاته 898،745 $) ب (وفقا للمعايير الدولية للتقارير المالية، يتم توزيع العائدات على مكونات المطلوبات وحقوق الملكية وفقا لطريقة المتبقية، مع قياس عنصر الدين أولا) عادة بالقيمة الحالية للتدفقات النقدية المستقبلية (، . مجموع العائدات بمبلغ 000 000 1 دولار من دولارات الولايات المتحدة من عنصر الديون الذاتية بحد ذاته القيمة الإضافية للخيار (898،745) 101،255 دولار نقدا. 1،000،000 السندات الدائنة. 898،745 الفائض المساهم - حقوق التحويل 101،255) ج (تحت بند مخصصات حقوق الملكية الفكرية، يمكن قياس عنصر حقوق الملكية عند 0 دوالر أمريكي. في هذه الحالة، يكون إدخال دفتر اليومية: نقدا. 1،000،000 السندات الدائنة. 000 000 1 أو بدلا من ذلك، قيس المكون الذي يسهل قياسه أولا (غالبا ما يكون مكون الدين)، ويطبق المتبقي على المكون الآخر. هذا الخيار يتسق مع العلاج المطلوب بموجب المعايير الدولية لإعداد التقارير المالية. دليل الحلول 16-10 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية التمرين 16-11 (أ) النقدية (500 X $ 1،000 X 1.03). السندات مستحقة الدفع. 485،000 حقوق المساهمة في تحويل الفائض 30،000 515،000 وفقا للمعايير الدولية للتقارير المالية، يتم تطبيق الطريقة المتبقية حيث يتم توزيع النقد على قيمة أداة الدين أولا، ويتم توزيع الباقي على حقوق الملكية. وتحسب قيمة الدين على النحو التالي: 500 × 1000 دولار × 0.97. ويفترض ذلك أن هذه الأوامر تحسب كأدوات حقوق ملكية. (ب) وبموجب المعيار (3856.20 و (21))، يتمثل أحد الخيارات في قياس المكون الأكثر قابلية للقياس أولا (غالبا مكون الدين)، وتطبيق العنصر المتبقي على المكون الآخر. هذا الخيار يتسق مع العلاج المطلوب بموجب المعايير الدولية لإعداد التقارير المالية، ودخول دفتر اليومية سيكون هو نفسه وفقا للمعايير الدولية لإعداد التقارير المالية. وفي هذه الحالة، يمكن أيضا قياس هذا الأمر بسهولة حتى يتمكن الكيان من تسجيل المعاملة على النحو التالي: النقد (500 × 1000 دولار × 1.03). السندات مستحقة الدفع. 502،500 حقوق المساهمة في تحويل الفائض 12،500 515،000 خيار آخر هو قياس عنصر حقوق الملكية عند 0 دولار أمريكي. في هذه الحالة، يكون إدخال دفتر اليومية: نقدا (500 X $ 1،000 X 1.03). 515،000 السندات الدائنة. 515،000 ممارسة مختصرة 16-12 دليل الحلول 16-11 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية السندات المستحقة. سهم عادي . دليل الحلول 16-12 510،000 510،000 باب 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-13 الأسهم المفضلة. ساهم في حقوق تحويل الفائض. سهم عادي . 80،000 8،000 88،000 ممارسة مختصرة 16-14 (أ) تتضمن حصة المستودع خيارا كتابيا يتطلب من الشركة دفع مبالغ نقدية أو أصول أخرى إذا تم ممارسة الخيار. وللمالك الحق في ممارسة الخيار الذي هو خارج عن سيطرة الشركة. ولهذه األسباب، تصنف األسهم القابلة للتداول عادة كمطلوبات. ومع ذلك، وفقا للمعايير الدولية للتقارير المالية، يمكن تصنيف األسهم كحقوق ملكية إذا كانت األسهم أدوات حقوق ملكية "جوهرية". وبما أن الأسهم العادية المستغلة تمنح صاحب الحق حصة تناسبية من صافي أصول دافيسون عند التصفية، لأن الأسهم لا تملك الرتبة المفضلة أو تفضيل الأرباح، ولأنه لا توجد أسهم مشتركة أخرى، يمكن تصنيف أسهم ديفيسون العادية المنضمة كحقوق ملكية بموجب المعايير الدولية للتقارير المالية. ) ب (وفقا للمعايير الدولية للتقارير المالية، فإن معايير تصنيف األسهم المستأنفة كحقوق ملكية مماثلة لمعايير التقارير المالية الدولية. وبناء على ذلك، يمكن أن تصنف أسهم دافيسون المشتركة أيضا ضمن حقوق الملكية الفكرية. دليل الحلول 16-13 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-15) أ (هذه األسهم المفضلة القابلة لإلسترداد والتي يجب تصنيفها كالتزام بموجب المعايير الدولية للتقارير المالية. یفرض الاسترداد الإلزامي التزاما تعاقدیا بتسدید النقد أو الأصول الأخرى عند الاسترداد، والذي یمثل التزام مالي. (ب) تحت بند أسبي، يجب أن يتم تصنيف الأسهم المفضلة القابلة للاسترداد بشكل إلزامي (يشار إليها أيضا بالأسهم المفضلة العالية / المنخفضة) كحقوق ملكية. (ج) هذا النوع من المعاملات التي تنطوي على أسهم مفضلة يسمى "تجميد العقارات" لأن القيمة العادلة لأصول المنشأة مجمدة في وقت معين (بتجميد قيمة الاسترداد للأسهم الممتازة بقيمة تساوي القيمة العادلة أصول الشركة في وقت الانتقال). ثم يقوم المالكون المتعاقبون بشراء أسهم عادية في الشركة الجديدة بمبلغ اسمي، مما يسمح لهم بالاستفادة من الزيادات اللاحقة في قيمة الأعمال. املمارسة املختلفة 16-16) أ (حتت بند املعايري الدولية للتقارير املالية، يوجد التزام حيث اأن خمسس التسوية الطارئة) استنادا اإىل القيمة العادلة لالأسهم العادية للسركة (يستند اإىل حدث خارج سيطرة السركة. ویجب تصنیف الأسھم المفضلة کالتزام. (ب) في إطار المساعدة المتعلقة بالتنوع البيولوجي، ستصنف الحصص المفضلة كالتزام فقط في حالة احتمال حدوث احتمال كبير. وفي هذه الحالة، من غير المحتمل أن تتجاوز أسهم باركر المشتركة قيمة عادلة قدرها 100 دولار للسهم الواحد، وبالتالي من غير المرجح أن تحدث الطوارئ. يتم تصنيف األسهم املفضلة كحقوق ملكية. دليل الحلول 16-14 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-17 أربعة خطط تعويض الأسهم المشتركة هي: 1. خطط خيار الأسهم التعويضية (كوبس) 2. جوائز مباشرة من الأسهم 3. خطط حقوق تقدير الأسهم (سارس) 4. خطط من نوع الأداء ممارسة مختصرة 16-18 الفرق الرئيسي بين خطة خيار أسهم الموظفين (إسوب) وخطة خيار الأسهم التعويضية (سوب) هو أنه مع سوبس، والموظف عادة (سواء كليا أو جزئيا). وبالتايل يتم العرتاف مبعامالت خماطر السوق املالية كمعامالت راأسمالية) حمملة على حسابات حقوق امللكية (. الموظف يستثمر في الشركة. ومع ذلك، فإن منظمات المجتمع المدني، من ناحية أخرى، تعتبر أساسا وسيلة بديلة لتعويض موظفين معينين وكبار في كثير من الأحيان عن خدماتهم، مثل معاملة المقايضة. يتم تقديم الخدمات من قبل الموظف لدعم العمل من إنتاج الإيرادات. وبالتايل يتم العرتاف باملعامالت اخلاسة مبجموعة خماطر السوق يف بيان الدخل) املتحمل على حساب املسروفات (. دليل الحلول 16-15 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-19 1/1/14 بدون إدخال 12/31/14 مصاريف التعويض. ساهم خيارات الفائض-الأسهم. 53،000 مصروف التعويض. ساهم خيارات الفائض-الأسهم. [000 53 دولار = 000 106 دولار × 1/2] 53 000 12/31/15 53،000 53،000 * التمرين الموجب 16-20 (أ) تحت بند خطة المساعدة الخاصة بالتنمية، تقاس خطة التسوية النقدية بالقيمة الجوهرية. 2014: [5،400 X ($ 22 - $ 20)] X 50٪ = $ 5،400 2015: [5،400 X ($ 34 - $ 20)] - 5،400 $ = 70،200 $ (ب) بموجب المعايير الدولية للتقارير المالية، يتم قياس خطة التسوية النقدية بالقيمة العادلة سارس، والتي يتم تقديرها باستخدام نموذج تسعير الخيارات وتضم قيمة قيمة وقيمة جوهرية. دليل الحلول 16-16 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-21 (أ) 31 ديسمبر 2014 مصروفات التعويض. المسؤولية بموجب خطط حقوق تقدير المخزون. (150،000 X 50٪) (ب) 31 ديسمبر 2014 مصروفات التعويض. المسؤولية بموجب خطط حقوق تقدير المخزون. 75،000 75،000 50،000 50،000 ($ 30 - $ 20) X 10،000) X 50٪ ممارسة مختصرة 16-22 تحدد خطط الأداء من نوع المديرين التنفيذيين المحددين الأسهم المشتركة (أو النقدية) إذا تم تحقيق معايير أداء محددة خلال فترة الأداء (عادة من ثلاث إلى خمس سنوات ). يتم قياس تكلفة تعويض خطة األداء من خالل القيمة العادلة لألسهم) أو النقدية (الصادرة في تاريخ الممارسة. يجب على الشركة استخدام أفضل تقديراتها لقياس تكلفة التعويض قبل تاريخ ممارسة الرياضة، وتخصيص تكلفة التعويض على مدى فترة الأداء باستخدام طريقة النسبة المئوية. وفي إطار الخطط التعويضية الأخرى، يتم تقييم الخيارات في تاريخ المنح باستخدام نموذج تسعير الخيارات مثل بلاك سكولز، ويتم توزيع قيمتها بالتساوي على مدى فترة الخدمة المطلوبة. دليل الحلول 16-17 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندية ممارسة مختصرة 16-23 يتم تحديد القيمة العادلة بسهولة عندما يكون هناك سوق نشط مع الأسعار المنشورة. وعندما لا يكون الأمر كذلك، يتم استخدام أسلوب التقييم. بالنسبة للخيارات، تعد نماذج تسعير الخيارات مفيدة لحساب القيمة العادلة. وتشمل المدخلات للنموذج: 1. سعر ممارسة. هذا هو السعر الذي يمكن فيه تسوية الخيار. ويوافق الطرفان على العقد. 2. العمر المتوقع للخيار. هذا هو مصطلح الخيار. ويوافق الطرفان على العقد. قد يتم تسوية بعض الخيارات فقط في نهاية المدة (المعروفة بالخيارات الأوروبية) في حين أن البعض الآخر يمكن تسويتها في نقاط خلال فترة (تعرف باسم الخيارات الأمريكية). 3. سعر السوق الحالي للمخزون الأساسي. هذا هو متاح بسهولة من سوق الأسهم. 4 - تقلب المخزون الأساسي. هذا هو حجم التغيرات المستقبلية في سعر السوق. فالتقلب ينظر في كيفية تحرك سعر السهم المحدد بالنسبة للسوق. 5. توزيعات الأرباح المتوقعة خلال عمر الخيار. 6. معدل الفائدة الخالية من المخاطر لحياة الخيار. وبوجه عام، تحمل السندات الحكومية عائدا يعتبر عائد خال من المخاطر. دليل الحلول 16-18 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة الكندية العاشرة الحلول لممارسة التمارين 16-1 (10-15 دقيقة) (أ) 2 يناير 2014 المشتقات - الأصول / المطلوبات المالية . السيولة النقدية . ) ب (31 مارس 2014 المشتقات - الموجودات المالية / المطلوبات. ربح . (500 15 دولار - 350 دولارا) 350 350 150 150 150 150 (ج) زيادة صافي الإيرادات في الفترة المالية بمقدار 150 15 دولارا. (د) نظرا لعدم توفر معلومات عن الاستثمارات أو التعرضات الأخرى التي قد يكون جاكسون، يبدو أن الشركة قد استخدمت الخيار لأغراض المضاربة. يبدو أن جاكسون ليس التحوط للحد من مخاطر الصفقة الحالية أو المستقبلية. (ه) سوف تعرض هذه المشتقة الشركة لمخاطر سعرية، حيث أن السعر الأساسي هو متغير قد يغير قيمة الخيار. بالإضافة إلى ذلك، هناك مخاطر الائتمان / الطرف المقابل (خطر أن الطرف الآخر في العقد لن تفي جانبهم من العقد) وخطر السيولة (خطر أن جاكسون لن تكون قادرة على الوفاء جانبها من العقد) . وبما أن هذا هو الخيار الذي تم شراؤه، جاكسون لديه الحق ولكن ليس الالتزام بممارسة الخيار. إذا كان الخيار في المال، جاكسون تريد ممارسة ذلك. دليل الحلول 16-19 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندي التمرين 16-2 (10-15 دقيقة) (أ) 1 أبريل 2014 المشتقات - الأصول / الخصوم المالية. السيولة النقدية . (ب) 30 يونيو 2014 المشتقات - الأصول / المطلوبات المالية. الربح .......................................... ($ 5،000 - $ 150) (ج) يوليو 1، 2014 فف-ني الاستثمارات. خسارة ………………………………………………. كاش (500 X 25 دولارا). المشتقات - الأصول / الخصوم المالية. * 500 X 34،50 150 150 4،850 4،850 17،250 * 250 12،500 5،000) د (تذكر بأن القيمة العادلة لخيار الطلب تستند إلى القيمة الجوهرية والقيمة الزمنية. والخيار هو خيار لمدة 6 أشهر وتم ممارسته بعد ثلاثة أشهر. ولأن الخيار تم ممارسة (مع ثلاثة أشهر متبقية)، لن يكون بيتي قادرا على استرداد جزء القيمة الزمنية للقيمة العادلة للخيار. دليل الحلول 16-20 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندي التمرين 16-3 (10-15 دقيقة) (أ) بموجب هذا المعيار، يعتبر الالتزام بالشراء عقدا تنفيذيا يمكن أن يكون واستقر على أساس الصافي عن طريق دفع النقد بدلا من تسليم البرتقال. ومع ذلك، لأن عصير طازج تعتزم تماما تسليم البرتقال، يتم تعيين العقد على أنها "الاستخدام المتوقع" وليس حساب كمشتقات، بدلا من ذلك، لا يتم الاعتراف بالعقد حتى يتم تسليم البرتقال. لذلك، لا توجد إدخالات دفتر اليومية المطلوبة إما في 1 يناير أو 31 يناير. سيتم تسجيل دخول دفتر عندما عصير طازج في الواقع تسليم البرتقال. (ب) إذا لم يعتزم عصير الطازج تسليم البرتقال، فسوف ينظر إلى العقد التنفيذي على أنه مشتق لأنه يمكن تسويته على أساس الصافي. لذلك، يتم تسجيل العقد بالقيمة العادلة. ونظرا لعدم وجود تكلفة للدخول في العقد، لن يكون هناك إدخال أولي في 1 يناير. ومع ذلك، سيتم وضع علامة على العقد إلى السوق وسوف تتغير مع تغير سعر البرتقال. ولذلك سيتم إدخال دفتر اليومية التالي في 31 يناير: الخسارة (10،000 X (0.50 - 0.49)). المشتقات - الأصول / الخصوم المالية. 100 100 (ج) في إطار هذا البند، لن يتم اعتبار عقد الالتزام بالشراء هذا مشتقا لأن هذا الاتفاق لا يتم تبادله. ولذلك، لن يتم الاعتراف بالعقد حتى يتم تسليم البرتقال. دليل الحلول 16-21 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، وييسك، ماكونومي المحاسبة المتوسطة، الطبعة العاشرة الكندي التمرين 16-4 (10-15 دقيقة) (أ) تعتبر المشتقة مشتق ثابت مقابل ثابت أسهم الكيان، حيث أن الخيار ينص على أن تقوم المنشأة بشراء (شراء) عدد ثابت من الأسهم مقابل مبلغ ثابت من المقابل. تنص املعايري الدولية للتقارير املالية على اأن هذه املعاملة سوف تقدم كتخفيس من حقوق املساهمني وليس كاستثمار. هذا هو، على نحو فعال، التقاعد المحتمل للأسهم (أو الحصول على أسهم الخزينة، إذا كان ذلك مسموحا). حقوق الملكية - مشتق ثابت ثابت. السيولة النقدية . 250 250) ب (لأن الخيار يتيح خيارا في كيفية تسوية الخيار، فإن الأداة هي أصل مالي أو التزام مالي (مشتق) بشكل افتراضي بموجب المعايير الدولية للتقارير المالية ما لم تكن جميع خيارات التسوية الممكنة هي أداة حقوق ملكية. في هذه الحالة، خيار التسوية واحد هو تسليم النقدية. ولذلك، سيتم تصنيفها كموجودات مالية) مشتقة (. دليل الحلول 16-22 الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، العاشر الكندي الطبعة ممارسة 16-5 (15-25 دقيقة) 1. 2. 3. 4. 5. 6. 7. نوع الأدوات المالية المشتقات المالية - العقود الآجلة المشتقات المالية غير المالية - العقود الآجلة المتداولة في البورصة هذه ليست أداة مالية هذا هو التزام الشراء (وبالتالي لا يتم تبادل التداول) كونترا حقوق الملكية - وهذا هو خيار الشراء التي تم شراؤها التي هي مستقر فقط في الكيان أدوات حقوق الملكية الخاصة) الثابتة الثابتة (المشتقات غير المالية - العقود اآلجلة المتداولة في البورصة. زيادة في مبلغ الاسترداد يجعل من المرجح جدا الشركة سوف تسترد، ويفرض مسؤولية لتسليم النقد أو الأصول الأخرى في وقت الاسترداد. دليل الحلول توقيت االعتراف عندما تتقلب القيمة العادلة. القيمة عند الاستحواذ هي $ لا شيء. عندما تتذبذب أسعار الوقود. القيمة عند الاستحواذ هي $ لا شيء. قیاس التدفقات النقدیة المستقبلیة للتدفقات النقدیة المستقبلیة صافي الدخل غیر متوفر / غیر متاح لأن ھذه لا یتم تبادلھا وتعتزم الشرکة تسلیم الصلب، فإنھا لا یتم إدراجھا في البیانات المالیة بموجب إما أسبي أو إفرس عند شراء الخیارات و الدفعات النقدية غير مدفوعة ما لم تكن مرهقة N / A النقدية المدفوعة N / A الهامش الأولي يشبه حساب مصرفي. النقدية المودعة على الهامش صافي الدخل عندما تصدر الأسهم بف التدفقات النقدية المستقبلية صافي الدخل 16-23 بف من التدفقات النقدية المستقبلية المكاسب أو الخسائر صافي الدخل الفصل 16 كيسو، ويغاندت، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، العاشر الكندي الطبعة ممارسة 16-5) تابع (نوع األدوات المالية أداة هجينة. إن الأوامر هي خيارات مكتوبة، والدين هو التزام. توقيت االعتراف عندما يتم إصدار الدين 9. األداة الهجينة - خيار التحويل هو خيار مكتوب، وهو حق الملكية حيث سيتم إصدار عدد ثابت من األسهم. عندما يتم إصدار الدين 10. المسؤولية - هذه أسهم قابلة للتداول وحيث أن خيار إعادة الأسهم إلى الشركة هو خارج سيطرة الكيان، فإنها هي التزامات ما لم يتم استيفاء شروط معينة معينة. عندما يتم إصدار الصكوك 8. دليل الحلول 16-24 القياس المعيار الدولي للتقارير المالية - الديون في بف للتدفقات النقدية المستقبلية والراحة إلى حقوق الملكية أسبي - تخصيص 0 $ إلى مذكرة أو قد تشعب المبلغ الأولي بين الدين وحقوق المساهمين تخصيصها بسهولة أكبر أولا مع والباقي إلى العنصر الآخر المعايير الدولية للتقارير المالية - الدين في بف من التدفقات النقدية المستقبلية والراحة إلى حقوق المساهمين ASPE - قد تخصيص 0 $ إلى ميزة التحويل أو قد تشعب المبلغ الأولي بين الدين وحقوق الملكية تخصيصها بسهولة أكبر يمكن قياسها أولا مع المتبقية إلى أخرى المبلغ المبلغ المستلم الأرباح أو الخسائر صافي الدخل لعنصر الدين بما في ذلك الفوائد والأرباح / الخسائر عند الإطفاء صافي دخل عنصر الدين بما في ذلك الفوائد والأرباح / الخسائر عند الإطفاء صافي دخل عنصر الدين بما في ذلك الفوائد والأرباح / الخسائر عند الإطفاء الفصل 16 كيسو، ويغاندت ، وارفيلد، يونغ، ويسيك، ماكونومي المحاسبة المتوسطة، العاشر الكندي الطبعة ممارسة 16-6 (20-25 دقيقة) 1. F قيمة الجو من السندات دون أوامر الضمان هو 285،000 $ ($ 300،000 X .95) النقدية (300،000 $ X 1.04). 312،000 السندات مستحقة الدفع. المساهمة في فائض مخزونات الأوراق المالية 2. 285،000 27،000 تحت الخيار أسب، يتمثل الخيار الأول في قياس المكون الأكثر قابلية للقياس أولا (غالبا مكون الدين)، وتطبيق المتبقي على المكون الآخر. والخيار الثاني هو قياس عنصر حقوق الملكية عند 0 دولار. والإدخالات في إطار هذين النهجين هي على التوالي كما يلي: النقدية (000 000 10 دولار X.97). 9،700،000 السندات مستحقة الدفع. 9،300،000 حقوق تحويل الفائض. 400،000 النقدية (10،000،000 X X97). السندات مستحقة الدفع. 3. 9،700،000 9،700،000 تحت الخيار أسب، يتمثل الخيار الأول في قياس المكون الذي يسهل قياسه أولا، وتطبيق البقايا على المكون الآخر. السيولة النقدية . 19،600،000 السندات الدائنة. 18,400,000 Contributed Surplus—Stock Warrants 1,200,000 Value of bonds plus warrants ($20,000,000 X .98) Value of warrants (200,000 X $6) Value of bonds Solutions Manual 16-25 $19,600,000 1,200,000 $18,400,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-6 (Continued) The second option is to measure the equity component at $0. Cash . 19,600,000 Bonds Payable . 19,600,000 4. Loss on Redemption of Bonds . 30,000* Retained Earnings . 35,000** Bonds Payable . 9,925,000 Contributed Surplus — Conversion Rights . 270,000 Common Shares . 10,195,000 Cash . 65,000 * $9,955,000 – ($10,000,000 – $75,000) ** $65,000 – $30,000 5. Fair value of bonds without warrants ($500,000 X .95) $475,000 Cash ($500,000 X 1.03) . 515,000 Bonds Payable . Contributed Surplus—Stock Warrants 475,000 40,000 The warrants are equity instruments since they are fixed for fixed. Solutions Manual 16-26 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-7 (20-25 minutes) (a) Cash . Bonds Payable ($6,000,000 X .97) . Interest Payable . Contributed Surplus — Conversion Rights . 5,970,000** 5,820,000 90,000* 60,000 * ($6,000,000 X 9% X 2/12) ** [($6,000,000 X .98) + $90,000] (b) Interest Payable . Interest Expense . Bonds Payable . Cash ($6,000,000 X 9% ÷ 2) . 90,000 186,102 6,102 270,000 Calculations: Par value Issuance price .97 Total discount Months remaining Discount per month ($180,000 ÷ 118) Discount amortized (4 X $1,525) Solutions Manual 16-27 $6,000,000 5,820,000 $ 180,000 118 $1,525 $6,102 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-7 (Continued) (c) Bonds Payable ($1,500,000 – $41,186).. 1,458,814 Contributed Surplus — Conversion Rights . 15,000 Common Shares . 1,473,814 Calculations: Discount related to 25% of the bonds ($180,000 X .25) Less discount amortized [($45,000 ÷ 118) X 10] Unamortized bond discount Actual proceeds when bonds sold Value of bonds only Value of conversion rights Proportion converted Value of rights converted $45,000 3,814 $41,186 $5,880,000 5,820,000 60,000 _ _25% $15,000 (d) Under ASPE, there are two options in accounting for hybrid/compound instruments. The first option is to measure the component that is most easily measurable first (often the debt component), and apply the residual to the other component. This option is consistent with the required treatment under IFRS. If Daisy chooses this option, the journal entry to record the issuance of the convertible bonds on June 1, 2014 is the same as in part (a). The second option is to measure the equity component at $0. If Daisy chooses this option, the journal entry to record the issuance of the convertible bonds on June 1, 2014 is: Cash . Bonds Payable . Interest Payable . 5,970,000** 5,880,000 90,000* * ($6,000,000 X 9% X 2/12) ** [($6,000,000 X .98) + $90,000] Solutions Manual 16-28 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-7 (Continued) (e) The bondholders would only be motivated to convert bonds into common shares if they perceived an increase in the value of their investment, and if they would get common shares with a fair value higher than the fair value of the bonds that were given up in the conversion. The book value of what they gave up at the time of conversion is shown in the entry above as $1,473,814 for 30,000 common shares. This works out to slightly over $49 per share. Likely the common shares are trading at an amount higher than $49 by a good margin. There should be an excess over the book value of $49 as the bondholders are giving up a steady cash inflow from the interest income obtained from the bonds in exchange for shares, which might not yield any dividends. This is especially true as continuing to hold the bonds provides a return in the form of interest, yet the option feature locks in the stock appreciation in favour of the holder – so the immediate opportunity for a gain must be considerable. Solutions Manual 16-29 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-8 (10-20 minutes) (a) Bonds Payable ($2,400,000 + $44,500) 2,444,500 Contributed Surplus — Conversion Rights . 22,200 Preferred Shares . 2,466,700 (b) The advantages of bonds from the perspective of the bondholder are principally security and steady cash flows from the interest and the return of capital at the maturity date of the bonds. The advantages of preferred shares would be similar to bonds as to the cash flows from dividends received, particularly if the preferred shares are cumulative and the company has a strong history of dividend paying ability. Whereas the bonds have a fixed maturity date, typically the preferred shares do not. The lack of a maturity date or a date at which the preferred shareholder can get his capital investment returned at a fixed amount might be perceived as a disadvantage. This might also be the perception because the issuing company has no plans to redeem the preferred shares, although this perceived disadvantage is alleviated significantly if the preferred shares are actively traded. The conversion from bonds might be precipitated by a rise in interest rates, causing the market value of the bonds to drop, leading to a lower return on investment if sold. Other considerations might be that the dividend rate on the preferred shares outpaces the return of the bonds. Finally the tax treatment of the revenue type (interest versus dividends) might be another motive for the conversion by bondholders; the effect of the dividend tax credit can increase the after-tax yield significantly for an individual, and inter-corporate dividends attract no net tax in a corporation. Solutions Manual 16-30 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-9 (10-20 minutes) (a) Bonds Payable . Contributed Surplus — Conversion Rights . Common Shares . 963,000 135,000 1,098,000 Premium as of July 31, 2014 for $3,000,000 of bonds Face value of bond converted Carrying value of bond converted $900,000 $3,000,000 $900,000 $3,000,000 $210,000 3,000,000 $3,210,000 X $3,210,000 = $963,000 X $450,000 = $135,000 (b) Contributed Surplus — Conversion Rights . Contributed Surplus — Conversion Rights Expired . 315,000 315,000 ($450,000 – $ 135,000) Solutions Manual 16-31 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-10 (20-25 minutes) (a) Cash . 10,800,000 Bonds Payable . 8,500,000 Contributed Surplus — Conversion Rights . 2,300,000 (To record issuance of $10,000,000 of 8% convertible debentures for $10,800,000. The bonds mature in 20 years, and each $1,000 bond is convertible into 5 common shares) (b) Bonds Payable (Schedule 1). 2,595,000 Contributed Surplus — Conversion Rights . 690,000 (2,300,000 X 30%) Common Shares . 3,285,000 (To record conversion of 30% of the outstanding 8% convertible debentures after giving effect to the 2-for-1 stock split) Schedule 1 Computation of Carrying Value of Bonds Converted Discount on bonds payable on January 1, 2014 $1,500,000 Amortization for 2014 ($1,500,000 ÷ 20) $75,000 Amortization for 2015 ($1,500,000 ÷ 20) 75,000 150,000 Discount on bonds payable on January 1, 2016 1,350,000 Bonds converted 30% Unamortized discount on bonds converted 405,000 Face value of bonds converted 3,000,000 Carrying value of bonds converted $2,595,000 Solutions Manual 16-32 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-10 (Continued) (c) Computation of Common Shares Resulting from Conversion Number of shares convertible on January 1, 2014: Number of bonds ($10,000,000 ÷ $1,000) Number of shares for each bond Stock split on January 1, 2015 Number of shares convertible after the stock split % of bonds convert ed Number of shares issued 10,000 X 5 50,000 X 2 100,000 X 30% 30,000 (d) From the perspective of Hammond Corp., the conversion from bonds to common shares has the following advantages: 1. No obligation (or more flexibility) to pay dividends, as opposed to fixed cash outflows for interest payments, reducing financial risk. 2. No obligation to repay principal at maturity date of bonds. 3. Increased income from reduced interest costs (to be computed on an after-tax basis). 4. Depending on Hammond’s financial structure, the effect of the conversion might be a positive or negative effect on earnings per share. 5. Positive effect on debt to equity ratio. The disadvantages of the conversion to Hammond Corporation include: 1. Dilution of earnings for existing shareholders might make shareholders unhappy; offset at least in part by higher income because less interest is paid. 2. Existing shareholders will conceivably pressure the company not to dilute their ownership and power to vote (this may actually be unlikely, as the fact of the Solutions Manual 16-33 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-10 (Continued) conversion feature would have been fully disclosed since the initial issuance of the bonds, and the possibility of conversion would be fully reflected in the price of the shares). 3. Pressure from new shareholders for dividend payout. Solutions Manual 16-34 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-11 (10-20 minutes) Bonds Payable . 1,125,000 Contributed Surplus — Conversion Rights . 9,000 Common Shares . 1,134,000 Discount as of June 30, 2014 for $8,000,000 of bonds $500,000 Face value of all bonds 8,000,000 Carrying value of all bonds $7,500,000 Carrying amount of bonds converted: $1,200,000 $8,000,000 X $7,500,000 = $1,125,000 Carrying amount of rights exercised on conversion: $1,200,000 $8,000,000 Solutions Manual X $60,000 = $9,000 16-35 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-12 (30-40 minutes) (a) (1) December 31, 2015 Interest Expense . Bonds Payable ($120,000 X 1/20) . Cash ($6,000,000 X 7% X 6/12) . (2) 210,000 January 1, 2016 Bonds Payable . 406,400 Contributed Surplus — Conversion Rights . 8,000* Common Shares . *[1.04 less 1.02 = 2% X $6 million X 6.667%] Total premium ($6,000,000 X .02) Premium amortized ($120,000 X 2/10) Balance 24,000 $96,000 March 31, 2016 Interest Expense . Bonds Payable . ($120,000 / 10 X 3/12 X 6.667%) Interest Payable . ($400,000 X 7% X 3/12) Solutions Manual 414,400 $120,000 Bonds converted ($400,000 ÷ $6,000,000) Related premium ($96,000 X 6.667%) Face value of bond redeemed Carrying value of bond redeemed (3) 204,000 6,000 16-36 6.667% $6,400 400,000 $406,400 6,800 200 7,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-12 (Continued) March 31, 2016 Bonds Payable . Contributed Surplus — Conversion Rights . Common Shares . 406,200 8,000 414,200 Premium as of January 1, 2016 for $400,000 of bonds $6,400 ÷ 8 years remaining X 3/12 Premium as of March 31, 2016 for $400,000 of bonds Face value of bond converted Carrying value of bond converted (4) June 30, 2016 Interest Expense . Bonds Payable . Interest Payable . ($400,000 X 7% X 3/12) Cash . $6,400 (200 ) 6,200 400,000 $406,200 176,800 5,200 7,000 189,000 * [Premium to be amortized: ($120,000 X 86.667%) X 1/20 = $5,200, or $83,200** ÷ 16 (remaining interest and amortization periods) = $5,200] **Total to be paid: ($5,200,000 X 7% ÷ 2) + $7,000 = $189,000 ***Original premium 2014 amortization 2015 amortization Jan. 1, 2016 write-off Mar. 31, 2016 amortization Mar. 31, 2016 write-off Solutions Manual 16-37 $120,000 (12,000) (12,000) (6,400) (200) (6,200) $83,200 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-12 (Continued) (b) Bondholders would be motivated to hold off converting their investment in bonds into common shares to continue to take advantage of the security and steady cash flows from the interest and the return of capital at the maturity date of the bonds. Should the value of the common shares continue to climb higher, the opportunity to convert is still available until the conversion right expires. On the other hand, if the fair value of the common shares declines, the bondholder can continue to hold the bonds to their maturity and receive the face value of the bond, and collect interest payments to maturity. The risk in postponing the conversion lies in the volatility of the fair value of the common shares. If the bondholder does not convert when the common share fair value is high, the bondholder cannot realize a gain on the resale of the shares. Subsequently, if the fair value of the common shares declines the bondholder will not be able to sell the bond at a substantial gain since the incentive to convert to common shares is now non-existent and the conversion right is worthless. Solutions Manual 16-38 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-13 (10-15 minutes) (a) ASPE allows for two options: 1) to allocate the entire issuance to the debt component; or 2) to use the residual method. Residual method: The residual method under ASPE allows for the first allocation to be to the component that is more easily measurable, in this case, the equity component: OXFORD CORP. Journal Entry September 1, 2014 Cash ($5,304,000 + $117,000) . 5,421,000 Bonds Payable—Schedule 1 . 5,252,000 Contributed Surplus—Stock Warrants — Schedule 1 . 52,000 Interest Payable—Schedule 2. 117,000 (To record the issuance of the bonds) Schedule 1 Premium on Bonds Payable and Value of Stock Warrants Sales price (5,200 X $1,000 X 1.02) Deduct value assigned to stock warrants (5,200 X 2 = 10,400 X $5) Bonds payable $5,304,000 52,000 $5,252,000 Schedule 2 Accrued Bond Interest to Date of Sale Face value of bonds Interest rate Annual interest $5,200,000 9% $ 468,000 Accrued interest for 3 months – ($468,000 X 3/12) $ 117,000 Solutions Manual 16-39 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-13 (Continued) Allocation of zero to equity A second option is available under ASPE whereby the entire issuance is allocated to the debt. OXFORD CORP. Journal Entry September 1, 2014 Cash ($5,304,000 + $117,000) . 5,421,000 Bonds Payable . 5,304,000 Interest Payable—Schedule 1. 117,000 Schedule 1 Accrued Bond Interest to Date of Sale Face value of bonds Interest rate Annual interest $5,200,000 9% $ 468,000 Accrued interest for 3 months – ($468,000 X 3/12) $ 117,000 (b) A lower debt to total assets ratio indicates better debt-paying ability and long-run solvency. Allocating the entire issuance to the debt component (and therefore zero to equity) results in a higher debt to total assets ratio compared to using the residual method. The creditor may also analyze that the underlying financial instrument is the same under each option, and that the company’s accounting choice is affecting this calculated ratio. Solutions Manual 16-40 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-14 (15-25 minutes) a) Under ASPE, financial liabilities that are indexed to an entity’s performance are measured at the higher of the amortized cost and the amount owing at the statement of financial position date given the feature. Therefore, the journal entry upon issuance is recorded at the issue amount. Cash ($1,000 x 100 x 1.03) . Bonds Payable. 103,000 103,000 (b) The bond amortized carrying amount should be compared to the potential cash outflow under the indexing feature to determine its year-end carrying amount. Dec. 31, 2014 Amortized cost $102,400 ($103,000 – $600*) Indexed feature Higher of two options $102,400 $75,000 ($250 x 3 x 100) Dec. 31, 2015 $101,800 ($102,400 – $600) $105,000 ($350 x 3 x 100) $105,000 Dec. 31, 2016 $101,200 ($101,800 – $600) $135,000 ($450 x 3 x 100) $120,000** * The amortization of the premium is calculated as follows: Bond Premium: $3,000 Years to Maturity: 5 Amortization per year: $600 ** Although the indexed feature calculates a redemption feature at $135,000, the bond agreement states that the bonds cannot be redeemed for more than $1,200 per bond. Solutions Manual 16-41 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-15 (15-25 minutes) (a) 1/2/14 No entry (total compensation cost is $550,000) 12/31/14 Compensation Expense. 275,000 Contributed Surplus—Stock Options 275,000 [To record compensation expense for 2014 (1/2 X $550,000)] 4/1/15 Contributed Surplus—Stock Options 21,389 Compensation Expense . 21,389 ($275,000 X 3,500/45,000) (To record termination of stock options held by resigned employees) 12/31/15 Compensation Expense. 253,611 Contributed Surplus—Stock Options 253,611 [To record compensation expense for 2015 (1/2 X $550,000) – 21,389] 1/3/16 Cash (31,500 X $42) . 1,323,000 Contributed Surplus—Stock Options. 385,000 ($550,000 X 31,500/45,000 or $507,222 X 31,500/41,500) Common Shares . 1,708,000 (To record issuance of 31,500 shares upon exercise of options at option price of $42) Solutions Manual 16-42 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-15 (Continued) (Note to instructor: The fair value of the shares has no relevance in this entry and the following one.) 5/1/16 Cash (10,000 X $42) . 420,000 Contributed Surplus—Stock Options . 122,222 ($550,000 X 10,000/45,000 or $507,222 X 10,000/41,500) Common Shares . 542,222 (To record issuance of 10,000 shares upon exercise of remaining options at option price of $42) (b) The pricing model may not take into account forfeitures because they cannot be reasonably estimated. The objective of offering stock options is to attract, motivate, and remunerate selected individuals in the organization. Including a reduction of the expected expenditure by an arbitrary amount of forfeitures is contrary to the goal and does not reflect management’s intention. Had forfeitures been included in the estimate at the time of the grant of the options the total compensation expense would be proportionately reduced, based on management’s best estimate. (c) Four common compensation plans are: 1. 2. 3. 4. Compensatory stock option plans (CSOPs) Direct awards of stock Stock appreciation rights plans (SARs) Performance-type plans These different plans are used to compensate employees and especially management. It is generally agreed that effective compensation programs: Solutions Manual 16-43 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-15 (Continued) 1. Motivate employees to high levels of performance. 2. Help retain executives and recruit new talent. 3. Base compensation on employee and company performance. 4. Maximize the employee’s after-tax benefit and minimize the employer’s after-tax cost. 5. Use performance criteria that the employee can influence. (d) The main difference between an employee stock option plan (ESOP) and a compensatory stock option plan (CSOP) is that with ESOPs, the employee usually pays for the options (either fully or partially) and there may be a very large number of participants across the company. Thus ESOP transactions are recognized as capital transactions (charged to equity accounts). The employee is investing in the company. CSOPs, on the other hand, are primarily seen as an alternative way to compensate particular, often senior, employees for their services, like a barter transaction. The services are rendered by the employees in the act of producing revenues. Thus CSOP transactions are recognized on the income statement (charged to an expense account). Solutions Manual 16-44 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-16 (25-35 minutes) (a) 1/1/14 No entry 12/31/14 Compensation Expense . 375,000 Contributed Surplus — Stock Options . ($750,000 X 1/2) 12/31/15 Compensation Expense . 375,000 Contributed Surplus — Stock Options . 5/1/16 Cash (8,000 X $25). 200,000 Contributed Surplus — Stock Options . 300,000* Common Shares . *($750,000 X 8,000/20,000) 12/31/17 Contributed Surplus — Stock Options . 450,000 Contributed Surplus – Expired Stock Options . ($750,000 – $300,000) (b) 375,000 375,000 500,000 450,000 The market price of the Harwood shares at the date of grant would likely be lower than the exercise price. The objective of issuing the stock options is principally to motivate employees to work at enhancing the market value of the company’s shares. The options have a service period, typically of more than one year. Consequently, the company would want to allow for an upward movement in the share price to justify the remuneration of key employees whose work would have led to the increase in the market value of the shares. If the market value of the shares at the date of grant was at or greater than the exercise price, the incentive would be substantially removed, and so the plan would be less effective. Solutions Manual 16-45 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-16 (Continued) (c) The market price of the Harwood shares at May 1, 2016 of $31 is not used in recording the exercise of the stock options. From an accounting perspective, the market price is not relevant. It is nonetheless relevant to the executives in making their decision to exercise their stock options. The market price is mentioned to indicate that the timing of the exercise is justified, or at least makes sense. The market price of the shares exceeds the carrying value of the stock options plus the cash paid. Executives exercising a stock option would have paid $25 and could resell the shares immediately for $31, for a gain of $6 per share. (d) During 2017 the market price of the shares likely fell below $25 per share. This would explain why no additional stock options were exercised, and were left to lapse, as there was no benefit to be gained by the executives in exercising them. They could not recover the cash required to exercise the stock option through the resale of the shares if the stock price was below the exercise price of $25 per share. (e) The executives holding the stock options might delay the exercise of the options to postpone the requirement of obtaining the necessary cash to exercise the option. Often executives must sell the shares obtained on the exercise of stock options to pay off bank loans secured to obtain the necessary cash required. Proceeds from the sale of the shares are also used for the payment of the personal income tax that is assessed on the income for tax purposes realized on the sale of the shares obtained through the exercise of stock options. Solutions Manual 16-46 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 16-17 (10-15 minutes) (a) January 1, 2014 No entry (b) (c) (d) Solutions Manual December 31, 2014 Compensation Expense . Contributed Surplus — Stock Options . (5,000 X $10 X 1/4) 12,500 12,500 January 1, 2019 Cash (4,000 X $62). 248,000 Contributed Surplus — Stock Options . 40,000* Common Shares . *(5,000 X $10 X 4,000 / 5,000) December 31, 2021 Contributed Surplus — Stock Options . Contributed Surplus – Expired Stock Options . *(5,000 X $10 X 1,000 / 5,000) 16-47 288,000 10,000* 10,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-18 (15-20 minutes) (a) June 30, 2014 Interest paid Cash received on swap Interest expense Note $ 100,000 Rate 3.35%* $ 100,000 Amount $ 3,350 (350)** $ 3,000 3% * [(5.7 % + 1%) X 6/12] ** [(5.7 % + 1%) – 6%] X $100,000 X 6/12 December 31, 2014 Interest paid Cash received on swap Interest expense Note $ 100,000 Rate 3.85%*** $ 100,000 3% Amount $ 3,850 (850)**** $3,000 *** [(6.7 % + 1%) X 6/12] **** [(6.7 % + 1%) – 6%] X $100,000 X 6/12 (b) June 30, 2014 Interest Expense . Cash . Cash . Interest Expense . December 31, 2014 Interest Expense . Cash . Cash . Interest Expense . Solutions Manual 16-48 3,350 3,350 350 350 3,850 3,850 850 850 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition (c) The interest rate swap is a cash flow hedge because the hedge is entered into to protect Thompson against variations in future cash flows caused by the changes in the prime interest rate. At the time of entering into the contract, Thompson had not yet incurred the interest charges for the note. The cash flows are therefore related to future interest payments. Consequently the hedge cannot be a fair value hedge. Solutions Manual 16-49 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-19 (15-20 minutes) (a) December 31, 2014 Interest paid Cash paid on swap Interest expense Note $ 10,000,000 Rate 5.8% $ 10,000,000 6% Amount $ 580,000 20,000* $ 600,000 * (6% – 5.8%) X $10,000,000 December 31, 2015 Note Interest paid $ 10,000,000 Cash received on swap Interest expense $ 10,000,000 ** (6.6% – 6%) X $10,000,000 (b) December 31, 2014 Interest Expense . Cash . Interest Expense . Cash . December 31, 2015 Interest Expense . Cash . Cash . Interest Expense . Solutions Manual 16-50 Rate 6.6% 6% Amount $ 660,000 (60,000)** $ 600,000 580,000 580,000 20,000 20,000 660,000 660,000 60,000 60,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-19 (Continued) (c) The interest rate swap is a cash flow hedge because the hedge was entered into to protect Yellowknife against variations in future cash flows caused by the changes in the LIBOR rate of interest. At the time of entering into the contract, Yellowknife had not yet incurred the interest charges for the note. The cash flows are therefore related to future interest payments. Consequently the hedge cannot be a fair value hedge. (d) If the company follows hedge accounting under IFRS, the swap would be recognized, remeasured to fair value at each reporting date, and gains and losses in fair value would be booked to OCI under hedge accounting. As the interest cash flows actually occur, the gains/losses in OCI are transferred to net income. Solutions Manual 16-51 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-20 (20-25 minutes) (a) December 31, 2014 Interest Expense . Cash . ($1,000,000 X 7.5%) (b) December 31, 2014 Cash . Interest Expense . (c) December 31, 2014 Derivatives – Financial Assets/Liabilities . Unrealized Gain or Loss . (d) December 31, 2014 Unrealized Gain or Loss . Bonds Payable . 75,000 75,000 13,000 13,000 48,000 48,000 48,000 48,000 (e) Fair value hedge accounting can be applied to this hedge because the exposure is from a recognized liability, (the fixed-rate bond payable). The company is concerned that the interest rates will decline and therefore that the bond will become onerous (fair value will increase). (f) Under ASPE, the first two entries would be recorded but the bond would not be revalued and the swap would not be recognized (nor remeasured). Solutions Manual 16-52 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-21 (15-25 minutes) (a) PreNumber Total Fair estab. Diffeof CompenValue Price rence Rights sation 2014 2015 2016 2017 2018 $36 $32 40 32 45 32 36 32 48 32 $4 8 13 4 16 40,000 40,000 40,000 40,000 40,000 $160,000 320,000 520,000 160,000 640,000 Accrual Entry Balance of Liability $40,000 120,000 230,000 (230,000) 480,000 $40,000 160,000 390,000 160,000 640,000 25% 50% 75% 100% (b) December 31, 2014 Compensation Expense . 40,000 Liability under Share Appreciation Rights Plans 40,000 December 31, 2017 Liability under Share Appreciation Rights Plans 230,000 Compensation Expense . 230,000 December 31, 2018 Compensation Expense . 480,000 Liability under Share Appreciation Rights Plans 480,000 (c) June 1, 2019 Liability under Share Appreciation Rights Plans Cash [20,000 X ($46 – $32)] . Compensation Expense ………………………… Solutions Manual 16-53 320,000 280,000 40,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-21 (Continued) (d) If Barrett applies IFRS, the procedure is almost identical to the steps taken in part (a). The only difference is that the column headed up “Total Compensation” in the table would not be calculated at the intrinsic value of the SARs outstanding. Instead, this column would be completed by inserting the fair value of the SARs determined using an option pricing model. The procedure of how the total is applied to expense each year is the same as under ASPE. (e) Under ASPE, SARs plans are recognized at their intrinsic value at each financial statement date, and compensation expense is affected by the fair value of the company’s shares at each financial statement date. The fair value of the company’s shares may change due to events that were beyond the control or influence of the executive employee in the SARs program, and Barrett’s compensation expense may or may not reflect the value of the services provided by Murfitt in the year. As well, if fair value of the company’s shares fluctuate significantly, compensation expense may also fluctuate significantly, and calculated profit may not be an accurate reflection of the company’s performance in the year. An investor should carefully consider the effects of the SARs program when analyzing Barrett’s profit. Solutions Manual 16-54 Chapter 16 Intermediate Accounting, Tenth Canadian Edition $15 11 21 19 12/31/15 12/31/16 12/31/17 12/31/18 12 12 12 $12 1,400,000 1,800,000 0 $ 600,000 Cumulative Compensation Recognizable 100% 75% 50% 25% Percentage Accrued 1,350,000 50,000 $1,400,000 $ 150,000 (150,000) 0 Compensation Accrued to Date $ 150,000 Expense 2015 1,400,000 50,000 (150,000) $ Expense 2016 $ 1,400,000 50,000 1,350,000 Expense 2017 50,000 $ Expense 2018 Solutions Manual 16-55 Chapter 16 (d) Compensation expense for 2016 reflects a drop in the fair value of the shares, but it does not reflect the drop in fair value of the shares to below the pre-established price of $12 per share. On December 31, 2016, a debit of $150,000 to Liability Under Stock-Appreciation Rights Plans and a credit of $150,000 to Compensation Expense would be recorded, resulting in a zero balance in Liability Under Stock-Appreciation Rights Plans. If fair value of the shares drops below the pre-established price of $12, the SARs are out-of-the-money and would not be exercised by the officers in the program. Thus compensation expense should not reflect a drop in fair value of the shares to below the pre-established price of $12 per share. (b) Compensation Expense . Liability under Share Appreciation Rights Plans . (c) Liability under Share Appreciation Rights Plans . Cash [200,000 X ($19 – $12)] . Fair Value Preestablished Price Schedule of Compensation Expense - Stock Appreciation Rights (200,000) Date (a) *EXERCISE 16-22 (15-25 minutes) Kieso, Weygandt, Warfield, Young, Wiecek, McConomy 39 45 36 48 12/31/15 12/31/16 12/31/17 12/31/18 Fair Value $36 32 32 32 32 $32 800,000 200,000 650,000 350,000 $200,000 — 100% 75% 50% 25% Cumulative Pre-estaCompenPercenblished sation tage Price Recognizable Accrued Expense 2014 $50,000 $50,000 125,000 175,000 312,500 487,500 (287,500) 200,000 600,000 $800,000 Compensation Accrued to Date $125,000 Expense 2015 Solutions Manual 16-56 Chapter 16 2014 Compensation Expense . Liability under Share Appreciation Rights Plans . 2017 Liability under Share Appreciation Rights Plans . Compensation Expense . 2018 Compensation Expense . Liability under Share Appreciation Rights Plans . (b) Intermediate Accounting, Tenth Canadian Edition 600,000 287,500 50,000 $312,500 Expense 2016 Expense 2018 $600,000 600,000 287,500 50,000 $(287,500) Expense 2017 Schedule of Compensation Expense - Share Appreciation Rights (50,000) 12/31/14 Date (a) *EXERCISE 16-23 (25-30 minutes) Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *EXERCISE 16-23 (Continued) (c) From the perspective of the employee, the characteristics of the SAR and the stock option are very different. Although both provide a form of compensation based on the increase in the fair value of the shares of the employer, the differences in the features to the employee are important. In the case of the exercise of stock options the employee must provide cash and the options to obtain shares in the company. In order to recover the cash, the shares obtained from the stock option need to be sold. On the other hand the employee need not pay any cash to the company in exercising a SAR. The latter seems more attractive on this basis alone. (d) Performance-type compensation plans award the executives common shares (or cash) if specified performance criteria are attained during the performance period (generally three to five years). An example of a performance-type plan is the award of cash if the return on assets or equity increases to meet a certain threshold. Other targets include growth in sales, growth in earnings per share (EPS), or a combination of these factors. Solutions Manual 16-57 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition TIME AND PURPOSE OF PROBLEMS Problem 16-1 (Time 30-40 minutes) Purpose—the student calculates and records the purchase and the transactions concerning a call option contract for shares over two accounting periods and also records the ultimate settlement of the call option. Problem 16-2 (Time 30-40 minutes) Purpose—the student calculates and records the writing of a call option contract for shares over two accounting periods and also records the ultimate settlement of the call option. Problem 16-3 (Time 30-40 minutes) Purpose—the student calculates and records the purchase and the adjustments concerning a put option contract for shares over two accounting periods and also records the ultimate write-off of the put option as the market value never falls below the strike price. Problem 16-4 (Time 35-45 minutes) Purpose—the student analyzes a derivative that involves an entity’s own shares, and provides the alternative accounting treatment under ASPE and IFRS. Problem 16-5 (Time 35-40 minutes) Purpose—to provide the student with an opportunity to prepare entries to properly account for a series of transactions involving the issuance and exercise of common stock rights and detachable stock warrants, plus the granting and exercise of stock options. The student is required to prepare the necessary journal entries to record these transactions and the shareholders’ equity section of the statement of financial position as at the end of the year. Solutions Manual 16-58 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) Problem 16-6 (Time 10-15 minutes) Purpose—to provide the student with an opportunity to analyze three separate financial instruments: 1) a financial liability (loan); 2) a compensatory stock option plan; and 3) forward contract. Problem 16-7 (Time 35-40 minutes) Purpose—to provide the student with the opportunity to experience a situation in which the initial recording of a convertible bond was incorrectly done in a prior year. Based on the incorrect treatment, the student must revise the accounting of the issuance of the convertible bond, and prepare a correcting entry after calculating the appropriate yield to apply to the calculation of the bond using the effective interest method. Finally, comment on the effect if the correction on the debt-toequity ratio is required in the problem. Problem 16-8 (Time 15-20 minutes) Purpose—to provide the journal entry of the issuance of a note payable sold together with a warrant. The incremental method applies in this case. The student must then prepare the related amortization table for the note and some adjusting journal entries. Problem 16-9 (Time 30-35 minutes) Purpose—to provide the student with an opportunity to record the issuance of bonds with detachable warrants and conversion rights. Underwriting fees incurred in the issuance of the bonds are also recorded in the problem. The student must calculate the effective yield rate for the bonds, prepare an amortization table, and prepare journal entries for the issuance, conversion, and exercise of warrants. Finally some analysis concerning the likely value of the shares issued in the conversion is discussed. Problem 16-10 (Time 30-35 minutes) Purpose—to provide the student with an understanding of the entries to properly account for a stock option plan over a period of years. The student is required to prepare the journal entries when the stock option plan was adopted, when the options were granted, when the options were exercised, and when the options expired. Solutions Manual 16-59 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) *Problem 16-11 (Time 35-45 minutes) Purpose—the student calculates and records the transactions concerning a fair value hedge interest rate swap, over two accounting periods and also provides partial statement of financial position and statement of income disclosure at three points in time over the term of the swap. *Problem 16-12 (Time 40-50 minutes) Purpose—the student calculates and records the transactions concerning a cash flow hedge concerning the purchase of gold, over two accounting periods and also provides partial statement of financial position and statement of income disclosure at two points in time over the term of the futures contract. Solutions Manual 16-60 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition SOLUTIONS TO PROBLEMS PROBLEM 16-1 (a) July 7, 2014 Derivatives – Financial Assets/Liabilities . Cash . (b) September 30, 2014 Derivatives – Financial Assets/Liabilities . Gain ($1,340 – $240) . (c) December 31, 2014 Loss ($1,340 – $825) . Derivatives–Financial Assets/Liabilities . . (d) January 4, 2015 Cash [ 200 X ($75 – $70) . ربح. Derivatives – Financial Assets/Liabilities July 7, 2014 Sept. 30, 2014 Dec. 31, 2014 Balance 240 240 1,100 1,100 515 515 1,000 175 825 $ 240 1,100 (515) $825 The option is “in the money” at the exercise date since Hing Wa (the option holder) can purchase the shares for $70 when they are worth $75. Solutions Manual 16-61 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-2 (a) July 7, 2014 Cash . Derivatives – Financial Assets/Liabilities . (b) September 30, 2014 Loss ($1,340 – $240) . Derivatives – Financial Assets/Liabilities . (c) December 31, 2014 Derivatives – Financial Assets/Liabilities . Gain ($1,340 – $825) . . (d) January 4, 2015 Derivatives – Financial Assets/Liabilities . Loss . Cash [200 x ($75 – $70)] . . July 7, 2014 Sept. 30, 2014 Dec. 31, 2014 Balance 240 240 1,100 1,100 515 515 825 175 1,000 $ 240 1,100 (515) $ 825 The option is “in the money” (for the holder) at the exercise date since the holder of the option can purchase the shares for $70 Solutions Manual 16-62 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition when they are worth $75. Hing Wa loses because they must sell the shares at a price below the current market value. Solutions Manual 16-63 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-3 (a) July 7, 2014 Derivatives – Financial Assets/Liabilities . Cash . (b) 480 September 30, 2014 Loss ($480 – $250) . Derivatives – Financial Assets/Liabilities . . (c) 480 230 230 December 31, 2014 Loss ($250 – $100) . Derivatives – Financial Assets/Liabilities . . 150 150 (d) January 31, 2015 Put option is not exercised as the market price of Mykia shares exceeds $50, the strike price. Loss . 100 Derivatives – Financial Assets/Liabilities July 7, 2014 Sept. 30, 2014 Dec. 31, 2014 Balance Solutions Manual 100 $ 480 (230) (150) $ 100 16-64 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Solutions Manual 16-65 Intermediate Accounting, Tenth Canadian Edition Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-4 (a) The derivative is considered a fixed-for-fixed derivative in an entity’s own shares as the option stipulates that the entity will issue a fixed number of shares for a fixed amount of consideration. IFRS states that this transaction would be presented as a reduction from shareholders’ equity and not as an investment. This is, effectively, the prospective retirement of shares (or acquisition of treasury shares, if that is permitted). Equity – Fixed-for-fixed Derivative .. Cash . 750 750 (b) Because the option allows a choice in how the option will be settled, the instrument is a financial asset/liability (derivative) by default under IFRS unless all possible settlement options result in it being an equity instrument. If this call option contract allows both parties a choice to settle the option by either exchanging the shares or settling on a net basis, one settlement option is the delivery of cash, and the call option will be classified as a derivative. (c) ASPE is silent about the accounting for derivatives involving the entity’s own shares; however, the treatment of similar items would support presenting the option as a contra equity item because it clearly does not meet the definition of an asset. Therefore, the conclusion will not change. Solutions Manual 16-66 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-5 (a) 1. Memorandum entry made to indicate the number of rights issued including full details as to characteristics. 2. Cash . 200,000 Bonds Payable ($200,000 x 0.96) Contributed Surplus — Stock Warrants . * 3. Cash * . Common Shares. 192,000 8,000 288,000 288,000 *[(100,000 – 10,000) rights exercised] ÷ *[(10 rights/share) X $32 = $288,000 4. Contributed Surplus—Stock Warrants 6,400 ($8,000 X 80%) Cash*. 48,000 Common Shares. 54,400 *.80 X $200,000/$100 per bond = 1,600 *warrants exercised; 1,600 X $30 = $48,000 5. Compensation Expense*. Contributed Surplus – Stock Options . 50,000 50,000 *$10 X 5,000 options = $50,000 Solutions Manual 16-67 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-5 (Continued) 6. For options exercised: Cash (4,000 X $30) . 120,000 Contributed Surplus—Stock Options .. 40,000 (80% X $50,000) Common Shares. 160,000 For options lapsed: Contributed Surplus—Stock Options .. 10,000 Compensation Expense* . 10,000 *(Note to instructor: This entry provides an opportunity to indicate that a credit to Compensation Expense occurs when the employee fails to fulfill an obligation, such as remaining in the employ of the company, performing certain job functions, etc. However, if a stock option lapses because the share price is lower than the exercise price, then a credit to Contributed Surplus—Expired Stock Options occurs.) (b) Shareholders’ Equity: Share Capital: Common Shares, authorized 1,000,000 shares, 314,600 shares issued and outstanding $4,102,400 Contributed Surplus—Stock Warrants* 1,600 $4,104,000 Retained Earnings 750,000 Total Shareholders’ Equity $4,854,000 * $8,000 – $6,400 Calculations: Common Shares Number Amount At beginning of year 300,000 $3,600,000 From stock rights (entry #3 above) 9,000 288,000 From stock warrants (entry #4 above) 1,600 54,400 From stock options (entry #6 above) 4,000 160,000 Total 314,600 $4,102,400 Solutions Manual 16-68 Chapter 16 Kieso, Weygan dt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-5 (Continued) (c) Expiration of stock options does not make it incorrect to have recorded compensation expense related to the expired stock options, during the service period. The right to exercise the stock options was earned by the executive during the service period, and the company benefited from the executive’s services during the service period. Therefore, compensation expense was properly recorded in the service period (and need not be reversed in the event of expiration of the stock options). The accounting treatment resulted in recording of compensation expense in the years that related revenue was earned. If the executive had fulfilled the employment contract and the stock options expired, the following journal entry would be recorded for the expiration. Contributed Surplus — Stock Options . Contributed Surplus – Expired Stock Options . Solutions Manual 16-69 10,000 10,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-6 (a) Financial Instrument #1 This is a hybrid financial instrument. Under ASPE, the company can allocate the proceeds between the liability and the equity portion, or allocate 100% to the liability, as is required in this case. Under IFRS, the company must always measure the debt component first (generally at the present value of the cash flows), and assign the rest of the value to equity since it is a residual item. ASPE IFRS Debit Credit Debit Credit 5,000,000 5,000,000 5,000,000 4,567,072 Cash Notes Payable Contributed Surplus Conversion Rights 432,928 To record issue of convertible debt. $5,000,000 X .78353 (table A2) + $150,000 x 4.32948 (Table A4) = $4,567,072. Interest Expense 150,000 228,354 Notes Payable 78,354 Interest Payable 150,000 150,000 To record interest expense for year $4,567,072 x 5% = $228,354 Solutions Manual 16-70 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-6 (Continued) Financial Instrument #2: This is a compensatory stock option plan. The entries are the same under ASPE and IFRS. ASPE IFRS Debit Credit Debit Credit 550,000 550,000 550,000 550,000 Compensation Expense Contributed Surplus – Stock Options To record annual compensation expense related to CSOP Cash 250,000 250,000 Contributed Surplus – 55,000 55,000 Stock Options* Common Shares 305,000 305,000 To record one employee exercising options and purchasing shares. * $550,000 X 1/10 Financial Instrument #3: This is a forward contract. The entries are the same under ASPE and IFRS. ASPE Debit Credit 70,000 Derivatives – Financial Assets/Liabilities Gain To record gain on forward contract. Solutions Manual 16-71 70,000 IFRS Debit Credit 70,000 70,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-6 (Continued) (b) Balances at December 31, 2014: Account Balance under ASPE Derivatives – Financial Assets $70,000 Dr Interest Payable 150,000 Cr Notes Payable 5,000,000 Cr Contributed Surplus – Stock Options 495,000 Cr Contributed Surplus – Conversion Rights Balance under IFRS $70,000 Dr 150,000 Cr 4,645,426 Cr 495,000 Cr 432,928 Cr Note to instructor: It may be useful to illustrate the following “proof”: Notes Payable under IFRS Contributed Surplus – Conversion Rights Subtotal Less: Amortization to date of note discount Balance under ASPE Solutions Manual 4,645,426 Cr 432,928 Cr 5,078,354 Cr (78,354) Dr 5,000,000 Cr 16-72 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-7 (a) Entry at January 1, 2014 should have been: Cas h ($1,000,000 X 1.08) . 1,080,000 Bonds Payable ($1,000,000 X .98) .. Contributed Surplus — Conversion Rights . 980,000 100,000 At the issuance of the convertible bond, the bookkeeper should have recognized the debt (bond) and conversion right (equity) components separately in the accounts. As the company is compliant with IFRS, the residual method, as illustrated in the corrected entry above, should have been used. Under IFRS, the debt component is measured first, with the residual value assigned to equity since it is a residual item. (b) ASPE does have an option to allow for the equity portion to be allocated zero, with all the proceeds being allocated to the debt component. If this option was available, the bookkeeper would be correct. However, this is an optional treatment and the correction noted in part (a) above is still in order as the company is a publicly accountable enterprise and must prepare financial statements in accordance with IFRS. Solutions Manual 16-73 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-7 (Continued) (c) Using either a financial calculator or Excel the effective interest rate on the bonds is calculated as follows: Excel formula =RATE(nper, pmt, pv, fv, type) Using a financial calculator: PV $ 980,000 I ?% N 5 PMT $ (100,000) FV $ (1,000,000) Type 0 (d) Date Jan. 1, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Yields 10.53482 % Schedule of Bond Discount Amortization Effective Interest Method 10% Bonds Sold to Yield 10.53482% 10% Cash Paid 2014 2014 2015 2016 2017 2018 * rounded $1 (e) 10.53482% Effective Discount Interest Amort. $100,000 100,000 100,000 100,000 100,000 $500,000 $103,241 103,583 103,960 104,377 104,839* $520,000 $3,241 3,583 3,960 4,377 2008 4,839 $20,000 January 1, 2015 Retained Earnings ($103,241 – $86,400) . Bond Payable ($1,066,400 – $983,241) . 83,159 . Contributed Surplus — Conversion Rights . Solutions Manual 16-74 Carrying Amount $980,000 983,241 986,824 990,784 995,161 1,000,000 16,841 100,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-7 (Continued) (f) December 31, 2015 Interest Expense . 103,583 Bonds Payable . 3,583 . Cash . 100,000 (g) The debt to equity ratio, following the correction in part (e) above, will be substantially improved as $100,000 previously classified as part of debt is now correctly classified as equity. This will have a significant effect on the debt to equity ratio, as both the change to the numerator and the change to the denominator lead to a decrease in the ratio. The improvement in the ratio is reduced by the charge to Retained Earnings for correction in the error in interest expense from 2014. Solutions Manual 16-75 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-8 (a) The entry for the issuance of the notes on January 1, 2014: The present value of the note is: $1,200,000 X .56743 (factor for a single payment in 5 years at 12%) = $680,912 (Rounded by $4). Using a financial calculator: PV $? I 12% N 5 PMT $ 0 FV $ (1,200,000) Type 0 Yields $680,912 Excel formula =PV(rate, nper, pmt, fv, type) January 1, 2014 Cash . 1,000,000 Notes Payable . Contributed Surplus—Stock Warrants.. Solutions Manual 16-76 680,912 319,088 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-8 (Continued) (b) The amortization schedule for the zero interest bearing note is: Schedule For Interest And Discount Amortization — Effective Interest Method $1,200,000 note issued to yield 12% Cash Effective Discount Carrying Date Interest Interest Amortized Amount 1/1/14 $ 680,912 12/31/14 $0 $ 81,709* $ 81,709 762,621** 12/31/15 0 91,515 91,515 854,136 12/31/16 0 102,496 102,496 956,632 12/31/17 0 114,796 114,796 1,071,428 12/31/18 0 128,572 128,572 1,200,000 Total $0 $519,088 $519,088 *$680,912 X 12% = $81,709 **$680,912 + $81,709 = $762,621 (c) December 31, 2014 Interest Expense . Notes Payable . 81,709 81,709 (d) January 1, 2017 Cash (500,000 x $20)………… . 10,000,000 Contributed Surplus – Stock Warrants . 159,544 Common Shares . 10,159,544 ($ 319,088 X ½ = $159,544) Solutions Manual 16-77 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-9 (a) September 30, 2014: Cash . 4,600,000 Bonds Payable . 4,200,000 Contributed Surplus — Stock Warrants . 240,000* Contributed Surplus — Conversion Rights . 160,000 *($4,000,000 / 1,000 X 20 warrants X $3) (b) Using either a financial calculator or Excel, the effective interest rate on the bonds is calculated as follows: Excel formula =RATE(nper, pmt, pv, fv, type) Using a financial calculator: PV $ 4,200,000 I ?% N 20 PMT $ (160,000) FV $ (4,000,000) Type 0 Solutions Manual Yields 3.6436 % 16-78 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-9 (Continued) (c) Schedule of Bond Premium Amortization Effective Interest Method 8% Semi-annual Bonds Sold to Yield 7.2872% 4% 3.6436% Cash Effective Premium Carrying Date Paid Interest Amort. Amount Sept. 30, 2014 $4,200,000 Mar. 31, 2015 $160,000 $153,031 $6,969 4,193,031 Sept. 30, 2015 160,000 152,777 7,223 4,185,808 Mar. 31, 2016 160,000 152,514 7,486 4,178,322 Sept. 30, 2016 160,000 152,241 7,759 4,170,563 Mar. 31, 2017 160,000 151,959 8,041 4,162,522 Sept. 30, 2017 160,000 151,666 8,334 4,154,188 Mar. 31, 2018 160,000 151,362 8,638 4,145,550 Sept. 30, 2018 160,000 151,047 8,953 4,136,597 Mar. 31, 2019 160,000 150,721 9,279 4,127,318 Sept. 30, 2019 160,000 150,383 9,617 4,117,701 (d) December 31, 2014 Interest Expense . Interest Payable . ($153,031 X 3/6 = $76,516) March 31, 2015 Interest Expense . Interest Payable . Bonds Payable . Cash . 76,516 76,516 76,515 76,516 6,969 160,000 Note to instructor: It would be entirely reasonable to record one half of the amortization of the bond premium at the year end, December 31. This would increase the current interest payable to be equal to the cash interest payable of $80,000. Solutions Manual 16-79 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-9 (Continued) (e) March 23, 2017: Cash . Contributed Surplus — Stock Warrants ($240,000 X ½) . Common Shares . 600,000* 120,000 720,000 Number of warrants exercised: ($4,000,000 / $1,000 X 20 warrants X 1/2 = 40,000 ) Number of common shares issued: 40,000 warrants X 1 = 40,000 *(40,000 X $15 = $600,000) (f) September 30, 2019: Bonds Payable . 4,117,701 Contributed Surplus — Conversion Rights . 160,000 Common Shares . 4,277,701 (g) Number of common shares issued: ($4,000,000 / $1,000 X 80 common shares = 320,000) The bondholders would only be motivated to convert bonds into common shares if they perceived an increase in the value of their investment, and if they would get common shares with a market value higher than the fair value of the bonds that were given up in the conversion. The carrying amount of what they gave up at the time of conversion is shown in the entry above as $4,277,701 for 320,000 common shares. This works out to slightly below $13.37 per share. Likely the common shares are trading at an amount higher than $13.37 by a good margin. There should be an excess over the carrying amount of $13.37 as the bondholders are giving up a steady cash inflow from the interest income obtained from the bonds in exchange for shares, which might not yield any dividends. Solutions Manual 16-80 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-10 2014. No journal entry would be recorded at the time the stock option plan was adopted. However, a memorandum entry in the journal might be made on November 30, 2014, indicating that a stock option plan had authorized the future granting to officers of options to buy 70,000 common shares at $8 a share. 2015 No entry January 2 December 31 Compensation Expense . 209,524 Contributed Surplus—Stock Options . (To record compensation expense attributable to 2015—22,000 options) Pro-rata calculation: 2015 2016 President 15,000 13,000 Vice-President 7,000 7,000 Total options 22,000 20,000 Compensation Expense $ 209,524* $ 190,476** * 22,000 / 42,000 X $400,000 = $209,524 ** 20,000 / 42,000 X $400,000 = $190,476 209,524 Total 28,000 14,000 42,000 $400,000 2016 December 31 Compensation Expense . 190,476 Contributed Surplus—Stock Options . (To record compensation expense attributable to 2016—20,000 options) 190,476 Contributed Surplus—Stock Options . 209,524 Contributed Surplus—Expired Stock Options . (To record lapse of president’s and vicepresident’s options to buy 22,000 shares) 209,524 Solutions Manual 16-81 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition PROBLEM 16-10 (Continued) 2017 December 31 Cash (20,000 X $8) . 160,000 Contributed Surplus—Stock Options . 190,476 Common Shares . 350,476 (To record issuance of 20,000 common shares upon exercise of options at $8) Solutions Manual 16-82 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *PROBLEM 16-11 (a) (1) December 31, 2014 No entry required at the date of the swap because the fair value of the swap at inception is zero. (2) June 30, 2015 Interest Expense . Cash . Cash . ($10,000,000 X 8% X 6/12) (3) June 30, 2015 Cash . Interest Expense . [$10,000,000 X (8% – 7%) X 6/12] Swap receivable (8% X $10,000,000 X 1/2) Payable at LIBOR (7% X 10,000,000 X 1/2) Cash settlement . (4) June 30, 2015 Notes Payable . Unrealized Gain or Loss . (5) June 30, 2015 Unrealized Gain or Loss . Derivatives–Financial Assets/Liabilities Solutions Manual 16-83 400,000 400,000 50,000 50,000 Interest Received (Paid) $ 400,000 (350,000) 50,000 200,000 200,000 200,000 200,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *PROBLEM 16-11 (Continued) (b) Master Corp. Statement of Financial Position (partial) December 31, 2014 Long-term liabilities Notes payable $10,000,000 Income Statement (partial) For the Year Ended December 31, 2014 No items to report (c) Master Corp. Statement of Financial Position (partial) June 30, 2015 Current liabilities Derivatives – Financial Liabilities $200,000 Long-term liabilities Notes payable $9,800,000 Statement of Income (partial) For the Six Months Ended June 30, 2015 Interest expense ($400,000 – $50,000) $350,000 Other revenues and gains: Unrealized gain – Notes payable Unrealized loss – Swap contract Solutions Manual 16-84 $200,000 (200,000) 0 Chapter 16 Kieso, Weygandt, Warf ield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *PROBLEM 16-11 (Continued) (d) Master Corp. Statement of Financial Position (partial) December 31, 2015 Other assets Derivatives – Financial Assets $60,000 Current liabilities Notes payable $10,060,000 Income Statement (partial) For the Year Ended December 31, 2015 Income Statement Interest expense First six months (c)] Next six months Total $ 350,000 [as shown in 375,000* (see below) $ 725,000 Unrealized Gain—Swap $ 60,000 Unrealized Loss—Notes Payable (60,000) Total $ 0 *Swap receivable (8% X $10,000,000 X 1/2) Payable at LIBOR (7.5% X $10,000,000 X 1/2) Cash settlement Interest expense unadjusted June 30–December 31, 2014 Cash settlement Solutions Manual 16-85 $ 400,000 375,000 $ 25,000 $ 400,000 (25,000) $ 375,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *PROBLEM 16-12 (a) No entry required April 1, 2014 (b) June 30, 2014 Derivat ives-Financial Assets/Liabilities . Unrealized Gain or Loss - OCI . (c) September 30, 2014 Derivatives-Financial Assets/Liabilities . Unrealized Gain or Loss - OCI . (d) October 31, 2014 Raw Materials . Cash (500 ounces X $315) . Cash . Cash Derivatives-Financial Assets/Liabilities (e) December 20, 2014 Accounts Receivable/Cash . / Cash Sales Revenue . Cost of Goods Sold . Cash . Finished Goods Inventory . Solutions Manual 16-86 5,000 5,000 2,500 2,500 157,500 157,500 7,500 7,500 350,000 350,000 200,000 200,000 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition Unrealized Gain or Loss - OCI . Cost of Goods Sold . Solutions Manual 16-87 7,500 7,500 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *PROBLEM 16-12 (Continued) (f) Statement of Financial Position (partial) June 30, 2014 Current assets Derivatives-Financial Assets/Liabilities $5,000 Shareholders’ Equity Accumulated Other Comprehensive Income $5,000 Statement of Comprehensive Income (partial) For the Six Months Ended June 30, 2014 Other Comprehensive Income: Unrealized holding gain – Futures contract (g) $5,000 Statement of Comprehensive Income (partial) For the Year Ended December 31, 2014 Sales Cost of goods sold ($200,000* - $7,500) Gross profit (included in net income) Other comprehensive income: Unrealized holding gains on cash flow hedge Realized gain on cash flow hedge transferred to net income OCI, year ended December 31, 2014 $350,000 192,500 $157,500 7,500 (7,500) -0- *Note that the $200,000 cost of goods sold includes the $157,500 paid for the gold. IFRS also permits the amount in OCI to be netted with the asset inventory when it is acquired. Solutions Manual 16-88 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition *PROBLEM 16-12 (Continued) (h) Under ASPE and using hedge accounting, the futures contract would not be recognized in the accounts until the hedged item (the gold inventory) was acquired and recognized on the balance sheet. The gold would be purchased at $315 per ounce (total $157,500) and the previously unrecognized future is settled with the company receiving $7,500 cash which is credited against the inventory cost. This brings the inventory cost to $150,000, which reflects the locked in price of $300 per ounce under the futures contract. Solutions Manual 16-89 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition CASES Note: See the Case Primer on the Student website, as well as the Summary of the Case Primer in the front of the text. Note that the first few chapters in volume 1 lay the foundation for financial reporting decision making. *CA 16-1 AIR CANADA Overview - The industry is a challenging one with many bankruptcies and significant competition. The company’s main expense is fuel which accounts for significant amount of total costs of the company—the need is to manage cost . Air Canada uses a hedging strategy to fix its fuel costs. Hedges are complex and there are operational risks (risks in implementing and managing the hedges). Analysis and recommendations Issue: Accounting for hedge of fuel Apply hedge accounting - The hedged item is the anticipated fuel acquisitions and the hedging items are the derivatives used to lock in the prices on these. - From an economic perspective, these financial instruments will fix or cap the price for a significant percentage of fuel acquisitions and so this is an economic hedge. - Solutions Manual Do not - Hedge accounting is optional. - There is a cost associated with applying hedge accounting (accountants must prepare documentation and assess effectiveness and all this must be audited). - Hedge accounting has risks associated with it as the transactions and accounting are very complex. - Could note disclose the existence of the hedge instead. - Other. 16-90 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition CA 16-1 (Continued) Apply hedge accounting Do not - Under IFRS, the anticipated fuel acquisitions will not be recognized in the financial statements but the hedging items (derivatives) will be since they meet the accounting definition of derivatives. They will be measured at fair value at each reporting date; the gains/losses will otherwise be reflected in net income. Thus — even though there is an economic hedge in place with no further risk of loss, gains/losses will be booked through net income and introduce volatility. This is not reflective of the fact that the company has taken steps to protect itself and get rid of the volatility from an economic perspective. - One option is to use hedge accounting. This will result in the gains/losses from the revaluation of the derivatives to be booked through other comprehensive income thus shielding the net income number. The gains/losses will be reclassified to net income when the fuel is actually used. This has the effect of remeasuring the fuel costs to reflect the locked-in prices. This would generally be treated as a cash flow hedge as it is a hedge of a future transaction and related cash flows. - The company will have to identify the hedging relationship and assess the effectiveness of the hedge. آخر. Solutions Manual 16-91 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition CA 16-1 (Continued) Recommendation: Hedge accounting makes sense in this case as it provides greater transparency and allows users to see the impact of the actions management has taken to protect the company. Solutions Manual 16-92 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition CA 16-2 COACH CORPORATION Overview - The company uses performance-based compensation plans that are based on net income. Subjective estimates of bad debt expense affect the calculation. Net income is therefore a key number. IFRS is a constraint since this is a public company. Analysis and recommendations - Subjectivity of income is affecting compensation of executives. Controller faces ethical issue. As long as bad debt expense is calculated using best estimates, it should not change just because of the compensation plan. Accounting should be neutral and unbiased. Solutions Manual 16-93 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-1 ON-LINE DEALS Overview - Growing company thinking of going public GAAP is a constraint – due to FI agreement requiring audited financials – also thinking of going public so best to use GAAP and in particular IFRS May be a bias to make statements look better in order to increase initial share price – senior management is compensated with stock options and will stand to benefit greatly from higher share prices. As auditor would be cautious and conservative due to increased risk associated with potentially going public. Analysis and recommendations Issue: Revenues Gross - Must examine whether they are acting as a principal (e. g. selling things for a profit) or agent – providing a service of selling - In this case – where they are buying blocks of rooms or flights, they have the risks and rewards of ownership and stand to lose if they do not sell the whole block - They are acting as principals – selling assets that they have legal title to (blocks of rooms and flights) - Other Net - - Looks like they are providing a service of putting sellers and buyers together The revenue is therefore a type of commission and should be shown on a net basis Would have to analyze carefully but for many of the items where they are putting buyers and sellers together – there is no risk of loss to them. If the item is not sold then the loss rests with the airline or hotel company Other Recommendation: Would have to analyze carefully as there are multiple types of transactions. Safer to show on a net basis until more info can be obtained regarding whether they take legal title of the rooms/flights and whether they are at risk of loss. Solutions Manual 16-94 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-1 (Continued) Issue: Website costs Capitalize - The website is a critical asset that will provide future benefit by providing the platform by which ODI interacts with its customers - Without this – no sales or future cash inflows can occur - The website is owned and controlled by the company - Other Expense - Seems like the website is pretty critical to the business and it is important to continuously invest in it – therefore it is an ordinary, ongoing cost of doing business - Even if this is seen as an asset – given the problems this year regarding the hacking incident, might want to write off or impair any costs capitalized and understand that costs being incurred going forward are only good until there is a breach. Computer hacking is a big risk in this business and as soon as new security features are in place, someone is trying to breach them. - Other Recommendation: Treat as expenses. Issue: Lawsuit Recognize Do not - There is definitely an obligation - Very difficult to measure or duty to deal with this - Even though the lawyers feel problem that there are similar cases, - It was caused by a breach that each case is different Jay and Wen know about. Part - Plan to sue SAI and so the net of the breach was due to their losses may be insignificant own website and even for the - Other SAI problem – Jay and Wen were the ones that contracted with SAI - Jay and Wen have publicly apologized and promised to make things right. This creates a constructive obligation. - The lawyers have noted that for similar companies and situations – there have been Solutions Manual 16-95 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy - Intermediate Accounting, Tenth Canadian Edition significant lawsuit losses so a loss is likely. Other IC 16-1 (Continued) Recommendation: Accrue a liability Issue: FI Debt - An obligation to deliver cash exists because of the triggering event - This triggering event is outside the control of the company as it will depend on sales from customers - The company will obviously have a goal to grow as large as possible and would not limit growth just to preclude the triggering event happening - This is a more conservative view and given the significant growth and the continuing growth of this type of industry – growth is inevitable - Other Equity - Legally equity since pays dividends and has no due date - Looks like permanent financing since the triggering event is not likely to happen (is not genuine). Revenues are so huge currently because of the accounting policy to recognize on a gross basis. It makes more sense to recognize on a net basis and this will decrease revenues significantly and make the target more difficult to achieve (assuming the target is based on the historically recognized gross revenues) - The level of revenues might be seen to be within the control of the company – especially since it depends on an accounting policy choice and also on management decisions as to how much they would like to grow - Other Recommendation: Debt – more conservative Issue: Stock options Recognize as salary expense - This represents a cost of doing business - Management is providing a service to the company which must be captured so that the business model is more Solutions Manual Do not recognize - Difficult to measure since this is a private company and also since it is fairly new – there is not much history - Difficult to measure the value of the contribution and/or the value of the company 16-96 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy - transparent – otherwise profits are overstated Other Intermediate Accounting, Tenth Canadian Edition - Other IC 16-1 (Continued) Recommendation: Accrue Issue: Self-constructed asset Capitalize construction costs - May capitalize costs such as salaries and other costs to build the facility – Jay and Wen spend a significant amount of time on the design – all adds future value and is directly related to the construction activity - Proper design is critical and Jay and Wen have significant insight into the key risks of the company including the risks associated with protecting customer information - Other Expense - Jay and Wen own and work for the company – their compensation is an ordinary cost of doing business - It is very difficult to separate the value that they add to the business every day from the value they are adding to this particular asset - Other Recommendation: either way ‘Other’. Solutions Manual 16-97 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-2 SALTWORKS INC (SI) Overview - - Public company looking to buy out, therefore IFRS a constraint as public company has asked for IFRS to evaluate and in case they buy it (at which point would be more useful for consolidation). Will use the statements to make a decision to buy or not Role – as accountant – will want to be transparent but make the company look good so as to maximize value. Analysis and recommendations Issue: Mines 1 and 2 – costs incurred to build mine Capitalize costs - Allowed to capitalize exploration and evaluation costs under IFRS 6. Costs that can be capitalized include studies, exploratory drilling, sampling and those related to establishing technical feasibility and commercial viability. Expense - Unsure of future benefit (uncertainty as to value of potential salt find). - This is especially the case for mine 3 as not sure of quality of salt – may not be a market. - Other. Continued Solutions Manual 16-98 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-2 (Continued) Capitalize costs - Development costs must be analyzed under IAS 38 (intangible assets). For mine 2 costs – more likely developmental costs and may capitalize if technically feasible, intent to complete, ability to mine, existing market for output, availability of resources and ability to measure costs. In this case, not much information however, the company has certainly displayed intent to complete and assuming the salt is the same quality as mine 1 – a market exists for the mine 2 salt. The company appears to have the resources to carry on with the development. - Expense If capitalize – then must test for impairment. آخر. Recommendation: Probably best to expense the costs for mine 3 as there is too much uncertainty. Costs for mine 2 may be capitalized assuming criteria for capitalization is met. More data may need to be gathered. Solutions Manual 16-99 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-2 (Continued) Issue: Revenue recognition – logging rights Recognize revenues - Paid up front for access to trees. - Revenue not dependent upon how many trees cut down. - Access immediately granted – may log the whole thing immediately or over time. - May want to expense replanting costs against any revenue recognized so that profits are not overstated. - Other. Defer - Access over three years therefore recognize over three years. - The other company is paying for the right to cut down a certain number of the trees over a three-year period. Just because they paid upfront does not mean that the entity can recognize the revenues upfront. - Other. Recommendation: Better to defer revenues as more reflective of economic reality. As trees are cut down, recognizing obligation to replant as a constructive obligation exists. Solutions Manual 16-100 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-2 (Continued) Issue: Roads Capitalize costs Expense - Future value since may use - Impaired since washed out and after logging complete. must be rebuilt. - Weather derivative will cover - If hedge accounting not used losses. (no information given as to - Other. whether used or not) then the derivative would have been booked with gains being recognized in income (as long as derivative was measurable). Thus, the gains and losses will offset. - Other. Recommendation: It is likely more transparent to recognize impairment. Issue: Weather derivative/hedging - Must decide whether contract meets the definition of a derivative and therefore whether derivative accounting would be used as discussed above. - Likely the case as long as measurable. - No mention of whether hedge accounting used or not. Would consider using hedge accounting as long as costs outweigh the benefits. Solutions Manual 16-101 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-3 GREAT CANADIAN GAMING CORPORATION Overview - As a public company, GAAP is a constraint. As an analyst looking to see the impact of switching to IFRS. Note that the business has not changed – just the basis of accounting. Will be looking to see which accounting is more transparent to the business model. Analysis and recommendation There are several reconciling items as follows: 1. Impairments Pre-changeover GAAP IFRS - Recoverable amount is an undiscounted amount and so is higher. - This is the same as ASPE. - - Solutions Manual 16-102 Recoverable amount is the higher of value in use (a discounted amount) and fair value less costs of disposal. This is a more realistic measure of the current worth of the asset and results in earlier recognition of impairments. It is more transparent. Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-3 (Continued) 2. Contingent consideration relating to business combinations (note that this topic is covered in advanced accounting classes but is included here for completeness). Pre-changeover GAAP IFRS - Contingent consideration is - Contingent consideration is recognized only if estimable measured at fair value at and the outcome the acquisition date. Any determinable. subsequent changes are - Subsequent adjustments booked through income. are booked through - It is better to attempt to goodwill. measure and record the - ASPE is currently aligned contingent consideration as with IFRS. it forms part of what the acquiring company is giving up. - Subsequent adjustments are booked through income and are not buried in goodwill. This helps reduce potential manipulation of subsequent net income. - More transparent. 3. Amortization – this adjustment is a result of the impairment expense being booked under IFRS (the carrying value is lower and therefore amortization must be recalculated. Solutions Manual 16-103 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-3 (Continued) 4. Foreign currency adjustment - (this is beyond the scope of the course and will be covered in advanced accounting classes. It is covered here for the sake of completeness). As noted in the statements, as a concession, IFRS 1 allows companies to make certain elections and one-time writeoffs when IFRS is first adopted. This is a cost benefit concession on the part of the IASB to ease the transition to IFRS. In this case, accumulated foreign currency gains/losses on the translation of the financial statements of certain foreign subs were allowed to be written down to zero. This allows for a fresh start and is clearly measured and reflected in the reconciliation s o it is transparent. Solutions Manual 16-104 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-3 (Continued) 5. Stock-based compensation Pre-changeover GAAP - The cost of certain sharebased awards is recognized on a straight-line basis over the expected life of the stock option. - In addition, forfeitures are recognized as they occur. - Finally, individuals are determined to be employees if certain conditions are met. Goods and services from nonemployees are initially measured at the grant date and subsequently adjusted if needed. Solutions Manual 16-105 IFRS - An attempt is made to measure the fair value of each additional grant of options and then this is recognized through income over the service period. Assuming fair value is measurable, this is more transparent as the cost is recognized as it is incurred and over the service life. - For forfeitures, an attempt is made to estimate the forfeitures and reflect in the cost of compensation. This is subsequently adjusted if needed. This is more transparent and it reflects the best estimate of the costs. - Individuals are considered to be employees under a different definition. Goods and services from nonemployees are measured at the date that the company receives the goods or services. This is a difficult one to assess and requires significant judgement. Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition IC 16-3 (Continued) 6. Income taxes – in addition to the items below, all other changes noted in the reconciliation were also tax affected. Pre-changeover GAAP IFRS - Where an acquired asset’s - Acquired assets are tax base was different from recognized at their laid down its tax base, the carrying cost. This is reflective of the value of the asset was amount paid and is therefore adjusted for. more reliable. - Changes in tax balances - All changes in tax balances due to changes in tax laws relating to equity items are or rates are included in booked through equity. This income regardless of is more consistent and whether the tax balances leaves less room for relate to items previously judgement or potential manipulation. booked through equity. 7. IFRS 1 permits a company to record assets at fair value in the opening balance sheet and to deem this the new cost on a going forward basis. This is done to reduce the burden of transitioning to IFRS and because it is clearly noted, is acceptable. Note that the above relate to the items in the reconciliation. There are other IFRS 1 elections made as noted in Note 31 to the financial statements. In addition, note that there are also some presentation changes that do not affect the reconciliation of income or equity but do affect the balance sheet accounts. Solutions Manual 16-106 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition TIME AND PURPOSE OF WRITING ASSIGNMENTS WA 16-1 (Time 15–20 minutes) Purpose—to provide the student with an understanding of the proper accounting and conceptual merits for the issuance of stock warrants to three different groups: existing shareholders, key employees, and purchasers of the company’s bonds. This problem requires the student to explain and discuss the reasons for using warrants, the significance of the price at which the warrants are issued (or granted) in relation to the current market price of the company’s shares, and the necessary information that should be disclosed in the financial statements when stock warrants are outstanding for each of the groups. WA 16-2 (Time 25–30 minutes) Purpose—to provide the student with an opportunity to understand the use of the Black Scholes option pricing model and to understand how it is used in determining fair values, the inputs required and the impact on compensation costs if the inputs are varied for CSOPs. WA 16-3 (Time 25–30 minutes) Purpose—to have the students identify various financial risks using “real-life” examples and explain why it is important for a company to manage risk. Students are asked to describe derivatives and how they are used to hedge various risks and to explain the difference between hedging from an economic perspective and hedge accounting. WA 16-4 (Time 25–30 minutes) Purpose—to develop an understanding of executory contracts and derivative contracts. Students are required to explain how purchase commitments and futures contracts are measured and reported under IFRS and ASPE. Solutions Manual 16-107 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition TIME AND PURPOSE OF WRITING ASSIGNMENTS (Continued) WA 16-5 (Time 25–30 minutes) Purpose—to have the student distinguish between various treatments of derivatives used as economic hedges for three different transactions. The student must identify when hedge accounting would be appropriate and how this is accomplished under IFRS and ASPE. WA 16-6 (Time 25–30 minutes) Purpose – to have students explain why instruments settleable in the entity’s own shares cause accounting issues. WA 16-7 (Time 25–30 minutes) Purpose—to provide the student with an opportunity to understand the differences between ASPE and IFRS and the conceptual reasons for any differences. WA 16-8 (Time 10–15 minutes) Purpose—to provide students with an opportunity to explain the purpose and accounting for a put option. WA 16-9 (Time 15–20 minutes) Purpose—to have students compare speculating to hedging. Solutions Manual 16-108 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition SOLUTIONS TO WRITING ASSIGNMENTS WA 16-1 (a) The objective of issuing options and warrants to existing shareholders on a pro-rata basis is to raise new equity capital. This method of raising equity capital may be used because of pre-emptive rights on the part of a company’s shareholders and also because it is likely to be less expensive than a public offering. 2. The purpose of issuing options and warrants to certain key employees, usually in the form of a nonqualified stock option plan, is to increase their interest in the long-term growth and income of the company and to attract new management talent. Also, this issuance of warrants to key employees under a stock option plan frequently constitutes an important element in a company’s executive compensation program. Though such plans result in some dilution of the shareholders’ equity when shares are issued, the plans provide an additional incentive to the key employees to operate the company efficiently. 3. (b) 1. Warrants/options to purchase common shares may be issued to purchasers of a company’s bonds in order to stimulate the sale of the bonds by increasing their speculative appeal and by aiding in overcoming the objection that rising price levels cause money invested for long periods in bonds to lose purchasing power. The use of warrants /options in this connection may also permit the sale of the bonds at a lower interest cost. 1. Because the purpose of issuing warrants/options to existing shareholders is to raise new equity capital, the price specified in the warrants must be sufficiently below the current market price to reasonably assure that they will be exercised. Because the success of the offering depends entirely on the current market price of the company’s shares in relation to the exercise price of the warrants/options, and because the objective is to raise capital, the length of time over which the warrants/options can be exercised is very short, frequently 60 days. 2.Warrants/options, except for incentive stock option plans, may be offered to key employees below, at, or above the market price of the shares on the day the rights are granted. If a stock option plan is to provide a strong incentive, warrants that can be exercised shortly after they are granted and expire quickly, say, within one or two years, usually must be exercisable at or near the market price at the date of the grant. Warrants/options that cannot be exercised until a number WA 16-1 (Continued) Solutions Manual 16-109 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition of years after they are granted or those that do not lapse for a number of years after they become exercisable may, however, be priced somewhat above the market price of the shares at the date of the grant without eliminating the incentive feature. This does not upset the principal objective of stock option plans: heightening the interest of key employees in the long-term success of the company. Income tax laws penalize the issuance of warrants and stock options at prices below market price on the day the rights are granted by taxing them as part of employment income. 3. 1. Financial statement information concerning outstanding stock warrants issued to a company’s shareholders should include a description of the shares being offered for sale, the option price, the time period during which the rights may be exercised, and the number of rights needed to purchase a new share. 2. Financial statement information concerning stock warrants issued to key employees should include the following: status of these plans at the end of periods presented, including the number of shares under option; the prices at which the warrants/options may be exercised; the time periods and conditions under which they may be exercised; and the number of warrants exercised and forfeited during the year. 3. (c) Income tax laws impose no restrictions on the exercise price of warrants/options issued to purchasers of a company’s bonds. The exercise price may be above, equal to, or below the current market price of the company’s shares. The longer the period of time during which the warrant/option can be exercised, however, the higher the exercise price can be and still stimulate the sale of the bonds because of the increased speculation appeal. Thus, the significance of the length of time over which the warrants can be exercised depends largely on the exercise price (or prices). A low exercise price in combination with a short exercise period can be just as successful as a high exercise price in combination with a long exercise period. Financial statement disclosure of outstanding stock warrants/options that have been issued to purchasers of a company’s bonds should include the prices at which they can be exercised, the length of time they can be exercised, and the total number of shares that can be purchased by the bondholders. Solutions Manual 16-110 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-2 The Black-Scholes model is used to determine the fair value of options. Consequently, any financial instrument that is an option or has an option embedded in it, will require that some form of option pricing model be used. (a) i. Derivatives that are options used by companies to manage risk (hedging or speculation) will require the Black-Scholes model to determine the fair value; ثانيا. Convertible bonds issued by the entity have an option to convert embedded in the bond that must be separately measured; ثالثا. Compensatory stock option plans (CSOP) are plans where employees are given stock options in the company as payment for employment services to be provided. The fair value of these plans must be determined using the BlackScholes option pricing model. Under IFRS, the following standards apply: i. Derivatives have to be measured at fair value initially and at each subsequent reporting period. ثانيا. Convertible bonds contain both a liability and an equity component which are classified separately on the initial issuance of the bonds. Under IFRS, the residual method is used whereby the fair value of the debt component is measured first, and then any residual amount is allocated to the equity component. The amount classified to equity is not changed during the life of the bond, so does not need to be subsequently remeasured. ثالثا. CSOPs are measured at fair value at the time of the grant of the options to the employees. The fair value of the options must be determined using some option pricing model (generally the Black-Scholes option pricing model). This value is used to measure the compensation expense at the time of the grant, and does not change throughout the life of the options. Under ASPE, the following standards apply to each of the above: i. Derivatives generally have to be measured at fair value initially and at each subsequent reporting period. However, if the derivative is required to be settled in the company’s shares and the fair value of these shares cannot be readily determined, then the derivative is measured at cost. ثانيا. Convertible bonds contain both a liability and an equity component which should be classified separately. However, under ASPE, at the time of issuance, the company has a choice to either recognize the equity portion at zero (allocating all the proceeds on issue to the liability component) or determine the value of the component that is the more readily measurable first and any residual is allocated to the other component. The equity component does not change value throughout the life of the bond. ثالثا. CSOPs are measured at fair value at the time of the grant. The fair value of the options must be determined using some option pricing model (generally the BlackScholes option pricing model). This value is used to measure the Solutions Manual 16-111 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-2 (CONTINUED) compensation expense at the time of the grant, and does not change throughout the life of the options. (b) The inputs into the Black-Scholes model include: i. the exercise price ii. the expected life of the option iii. the current market price of the underlying share iv. the volatility of the price of the underlying shares v. expected dividend during the life of the option vi. the risk-free rate of interest over the life of the option. The difficulty for private enterprises is in determining the volatility of the shares, since the entity’s shares are not publicly traded. However, the private company must still make an attempt to estimate what this volatility would be by looking at similar company shares in the market. The other input that is more difficult to determine is the current market price of the shares, since again, the shares are not publicly traded. For a public company, this information would be readily available. (c) Assuming all other inputs remain unchanged: i. an increase in the risk-free rate will increase the fair value of the options granted since the time value of money has increased; ثانيا. a decrease in the volatility will decrease the fair value of the options granted since the likelihood of being able to exercise at higher prices is reduced; ثالثا. an increase in the expected life of the options will increase the fair value of the options since there is a longer time period before they need to be exercised which increases the time value component of the price. (d) The major differences between exchange-traded options and stock options granted under employee benefit plans are the following: i. employee stock options have a vesting period during which they cannot be exercised and during which the options are forfeited if the employee leaves; ثانيا. employee stock options tend to have much longer periods to maturity (often up to 10 years from the date of grant) which normal exchange-traded options do not; ثالثا. new shares are issued by the company when the employee stock options are exercised; this is not the case with exchange-traded options where the shares are already issued and outstanding by the company. As a result of these significant differences, some believe that the Black-Scholes formula is not the correct model to use. However, even given these weaknesses, it is still believed to be the best alternative available to estimate the fair value of options under employee stock option plans. WA 16-3 Solutions Manual 16-112 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy (a) Intermediate Accounting, Tenth Canadian Edition The business model of Barrick Gold Corporation and its financial risk profile can be a good example. The company engages in the production and sale of gold, as well as in related activities such as exploration and mine development. It produces some copper and holds interests in oil and gas properties in Canada. Its mining operations are concentrated in its four regional business units: North America, South America, Africa, and Australia Pacific. It sells its gold and copper production into the world market. This business model exposes the company to various risks such as commodity price risk (the risk associated with the fluctuation of prices of various commodities), foreign exchange risk (risk associated with fluctuations in foreign currency exchange rates), and interest rate risk (the risk associated with changes in interest rates). In addition, the company is exposed to credit risk (the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument). As the company uses derivatives, it is exposed to another risk called market liquidity risk, which is the risk that a derivative cannot be eliminated quickly by either liquidating it or by establishing an offsetting position. If a company focuses solely on minimizing risk it could end up minimizing value, since risk creates opportunities and opportunities translate into value. In creating shareholder value it is important for a company to manage risk for various reasons. A company with better risk management strategies in place is consistently able to manage its price-value ratios better than its competitors, get better value for investments, and score higher ratings with the customer base. (b) Derivatives as defined by the accounting standards are: “financial instruments that create rights and obligations that have the effect of transferring, between parties to the instrument, one or more of the financial risks that are inherent in an underlying primary instrument. They transfer risks that are inherent in the underlying primary instrument without either party having to hold any investment in the underlying.” (CICA HandbookAccounting, Part II, ASPE Section 3856.05 and IAS 39.9). They derive their value due to the underlying instrument, require little or no upfront investment, and are settled in the future. Examples of derivatives are options, futures, forward contracts, and swaps. Solutions Manual 16-113 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-3 (Continued) (c) Companies that are exposed to financial risks might choose to reduce their exposure to these risks. Hedging is when derivatives are used to mitigate or offset these risks. In a perfectly hedged transaction, there should be no economic loss to the company. In other words, the loss of the hedged item is offset with any gain on the hedging item (the derivative). From an economic perspective, the hedge should reduce or limit the potential for loss. Hedging adds value for a company since it reduces the risk and volatility of the cash flows for a company. Hedge accounting is an option that is available under accounting standards to report and measure hedges. The key point to note is that hedge accounting is optional. A company can still be using hedging from an economic perspective and decide not to use hedge accounting to report and measure the hedged and hedging items. However, hedge accounting can only be used when the company is engaged in actual hedging practices. The company can also apply hedge accounting to some of its hedging practices and not to others. There is no need for hedge accounting if there is symmetry in the reporting of gains and losses on the asset or liability that has a market risk and the derivative that is used to mitigate that risk. That is, in both cases, the gains and losses may both be reported to the earnings, and therefore are automatically offset. Where hedge accounting is useful is where there might be a mismatch in the reporting of these gains and losses, or the derivative is for a future transaction that has not yet been recognized. An example of a mismatch in reporting of the gains and losses would be where the change in the fair value of an investment is recorded to other comprehensive income, and the change in the derivative used to hedge that investment is reported into current earnings. Hedge accounting would allow both the changes in fair value of the asset and of the derivative to be reported in current earnings, so the economic offset is properly reflected in the accounting records. Similarly, if a company has hedged a future transaction, then the changes in the fair value of the derivative can be recorded into other comprehensive income until the transaction impacts the earnings. At this time, the cumulative gains and losses on the derivative used to hedge the transaction would also be reported in current earnings. In this way the net economic gain or loss (which should be minimal) would be properly reported in the accounting earnings for the company. As hedge accounting is an exception to the usual rules for financial instruments, there are strict criteria that must be met before it can be used. Management must identify, document, and test the effectiveness of those transactions for which it wishes to use hedge accounting. The criteria to achieve hedge accounting are onerous and will have systems implications for all entities. Therefore, management should always consider the costs and benefits when deciding whether to use it. Especially for small or medium - sized companies, the costs can be significantly higher than the benefits. Also, management should think about the needs of its financial information users when it makes the decision about using hedge accounting. If a derivative becomes ineffective, then it no longer Solutions Manual 16-114 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition qualifies for hedge accounting and any gains or losses would be immediately reported into current earnings. Solutions Manual 16-115 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-4 (a) The first contract for the Papula Mine is a sales contract to deliver copper at a fixed price and a fixed volume (fixed by the annual production of the mine). This sale commitment is not traded on an exchange and is an executory contract. No money has changed hands at the beginning of the contract and cash will be received as delivery is made. This contract cannot be net settled in cash since delivery of the copper must be made. In this case, the contract is treated as an unexecuted contract, meaning that it does not need to be measured at fair value at each reporting period. Instead, the sale is recorded at the fixed committed price when delivery of the copper is made. This is true under IFRS and ASPE. The exchangetraded options for the Minera Mine are non-financial derivatives. The premium paid for the options is the fair value paid at the time the options are purchased. Under ASPE, even though the options are exchange traded, they are not futures contracts and are therefore initially recorded at fair value (amount paid) but not remeasured. Under IFRS, these options are a non-financial derivative which can be settled on a net basis. If the intent of the company is to make physical delivery of the copper, then the option can be designated as “expected use” and the company need not account for the options as a derivative instrument (FVNI). They would initially record the option at fair value (amount paid) but not remeasured. Alternatively, if the company’s intent is to settle on a net cash basis at some time during the term of the options, then the option is treated as a derivative. As such, the options would be measured and reported at fair value at each reporting period. (b) If the sale commitment contract was able to be settled net in cash, rather than making delivery of the copper, it would still be recorded when executed under ASPE since it is not an exchange-traded futures contract. However, under IFRS, the company would have to assess the likelihood of making delivery of the copper or settling on a net basis. If the company intends to deliver the copper, then the contract is designated as “expected use” and can be recorded when the delivery is made as a sale. If the company intended to settle on a net basis, then the contract would be treated as a derivative and would be measured and reported at fair value at every reporting period. Solutions Manual 16-116 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-5 1. The investment in the publicly traded shares is recorded at fair value under both IFRS and ASPE. Under ASPE, the gain or loss on the change in fair value is directly reported to current earnings. The option is a derivative, and since it is exchange traded, it is also measured at fair value at each reporting period with the changes reported in the current earnings. This results in symmetric reporting and a netting of the gains and losses on the hedged item and the hedging item in the profit or loss for the period. There is no need to use hedge accounting under ASPE in this case. Under IFRS, the company has a choice to classify the investment as FV-NI, or FV-OCI. The derivative must be recorded at fair value through profit or loss. If the company chooses to report the investment at fair value through profit or loss, then this would match the treatment of the option derivative. Similar to ASPE above, there would be no need for hedge accounting since the gains and losses on the hedged item and hedging item would be offset in the current earnings. However, if the company chooses to report the investment at fair value through OCI, then there is a mismatch because changes in the derivative will be reported in the profit or loss for the period, whereas changes in the investment are reported in OCI. Consequently, the company could adopt fair value hedge accounting and designate the investment as the hedged item and the option as the hedging item. The gains and losses on the investment would be recorded in the profit or loss for the period and would be offset against the gains and losses on the option derivative. In this case, the company might as well just use FV-NI accounting for the investment in the first place to avoid the complexities of hedge accounting. 2. Under IFRS and ASPE, the US dollar receivable must be translated into the equivalent Canadian dollars at each reporting period. Any foreign exchange gain or loss is recognized in the profit or loss for the period. The forward contract, which is a derivative, also must be reported at fair value with the gains and losses reported to net earnings. This accounting treatment results in symmetric reporting of the gains and losses, showing a net impact in the current earnings. Therefore, no hedge accounting is required and any gains and losses will offset. 3. The forward contracts to buy Australian dollars are to hedge anticipated future transactions. In this case, the hedged item has not yet occurred, but the purchase of the derivative has. The derivative would have to be reported at fair value at each reporting period, with gains and losses reflected in the current earnings. However, this results in a mismatch, since the anticipated future transaction has not yet taken place. The company should then consider hedge accounting. Under ASPE (CICA 3856.A63 Part II), a foreign currency forward contract that meets the criteria to qualify for hedge accounting will be accounted for as follows: Solutions Manual 16-117 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-5 (Continued) The forward contract can be designated as a hedge only if: • the forward contract is for the same amount and same currency as the anticipated future transaction; • the forward contract matures within two weeks of the anticipated hedged transaction; • it is probable that the future transaction will occur; • the fair value of the forward contract is zero at the time it is entered into. If so, the derivative is not recognized until it actually matures – in six months, and the loss on exchange is reported in the financial statements in the same period as the future transactions. Leon Price would emphasize to the CEO the strict requirements enabling hedge accounting to be used in this situation, and explain that only a true hedging arrangement can be recorded with hedge accounting. When the anticipated transaction actually occurs, the gain or loss on the forward contract will be adjusted to the carrying amount of the anticipated future transaction. Under IFRS, the same mismatch as described above would result if the forward contracts were reported at fair value at each reporting period. Under IFRS, the forward contract may qualify as a cash flow hedge assuming all the criteria are met. The forward contracts are still reported at fair value at each reporting period except that the gains and losses are now reported in OCI until the future transaction impacts the earnings. When this happens, the accumulated gains and losses in OCI related to the forward contract are transferred to profit or loss and reported in the same account as the anticipated transaction. In designating the derivative as a cash flow hedge, the company must document the hedging relationship, the hedged item, and the hedging item, and test for effectiveness at each reporting period. If the hedge becomes ineffective, then gains and losses on the forward contract must be immediately transferred out of OCI into profit and loss. Again, care must be taken to ensure that the hedge accounting criteria are met before using hedge accounting. Solutions Manual 16-118 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-6 The main issue that arises for instruments that require settlement in the entity’s own shares is whether the instrument should be presented as equity, a financial liability, or a financial asset. Generally, going back to basic principles is required to determine the appropriate presentation. However, there is some guidance that IFRS has noted in the standard: • “fixed for fixed principle” – where the number of shares and the consideration required to settle the instrument are both fixed, this will be presented as equity. An example of this is a written call option giving the holder the right to buy a fixed number of shares for a fixed amount of consideration with no choice for cash settlement. Purchased put or call options that give the entity to right to sell or buy a fixed number of shares for a fixed amount of consideration is equity, since there is no contractual obligation on the company’s part to pay cash. • An obligation to pay cash (or other assets) is required to be presented as a liability. A written put option where the holder has the right to sell a fixed number of shares to the company, or a forward contract to buy a fixed number of shares for a fixed amount of cash may obligate the entity to pay out cash. These will be recorded as financial liabilities. • A choice in settlement – Anytime there is a choice for cash settlement (or other assets) by either party, the instrument is a financial liability. (Only in cases where all the possible choices resulted in shares being issued would the instrument be recorded as equity.) Under ASPE, if the company can make a choice and avoid settling in cash or other assets, then this instrument would be recorded as equity. Contracts that will be net settled in cash or shares are financial assets or liabilities since either cash or a variable number of shares will be used for settlement. Solutions Manual 16-119 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-7 There are many differences between IFRS and ASPE with respect to measurement and reporting for complex financial instruments. Primarily, ASPE has been written to keep recognition and measurement issues simple and therefore requiring less cost and time to calculate and report. Also, ASPE has been designed with the creditor as the primary user, rather than outside shareholders and creditors. Given that creditors generally have access to management; the disclosure has also been simplified. These differences are highlighted below: a) b) c) d) e) Generally, purchase commitments are treated as executory contracts under ASPE, which simplifies the identification and measurement of these contracts. Under IFRS, if these contracts can be net settled in cash, and the entity is not likely to take delivery, then the purchase commitment must be reported at fair value, similar to other derivatives. ASPE would generally not require compound instruments that have components of both debt and equity to be separated. Under ASPE, it can be assumed that equity components are equal to zero (or if readily determinable, then these values can be used). Under IFRS, the liability and equity component must be separately classified. Again, ASPE has made the accounting treatment simpler without having to determine the values of the separate components unless the entity chooses to do so. Certain tax efficient preferred shares that are used extensively by private enterprises for estate planning can be shown as equity even if they are puttable for a certain amount of cash consideration. ASPE deems these to be “in-substance” equity, and since they are used regularly by private enterprises, this keeps the reporting less complicated. Under IFRS, these puttable shares would be reported as liabilities unless certain criteria are met for equity presentation. Instruments that have a choice to be settled in cash are always reported as liabilities under IFRS. Under ASPE, if the contingent settlement in cash is highly likely to occur, these instruments must be reported as liabilities. For instruments that can be settled using the entity’s own shares, ASPE has less guidance on how to treat these instruments. In these cases, a review of the basic principles is necessary to determine whether the instrument should be reported as a financial liability or equity. Private companies are less likely to use complicated instruments related to their own shares, since the shares are not easily transferrable. IFRS provides more guidance stating that only when there is a fixed number of shares to issue for a fixed consideration and there is no choice for cash settlement, can the instrument be presented as equity. In all other cases, the instrument would likely be classified as a financial liability. Solutions Manual 16-120 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-7 (Continued) f) g) h) i) Where the private enterprise has historically bought back the shares after the employee has exercised, the CSOP can be reported as a liability rather than equity. Because there is no ready market for these shares, the buying back of the shares by private enterprises happens more often so that employees can realize the value of these options. Under IFRS, CSOPs are reported as equity. In determining the fair value of the CSOP, a private enterprise will have to estimate a measurement of volatility, whereas this can be readily measured for publicly traded entities. SARs are reported at fair value under IFRS and at intrinsic value under ASPE. The main reason for this is the difficulty in determining the fair value of a SAR on shares that are not publicly traded. Hedging under IFRS is a lot more complex, with a choice between designating a cash flow hedge or a fair value hedge. Derivatives are still fair valued, but hedge designation will result in different reporting requirements for the gains and losses on the derivative and the hedged item. For cash flow hedges, the gains and losses on the hedging item can be reported in OCI. Under ASPE, if the company qualifies for hedge accounting for anticipated transactions, the derivative does not need to be recorded until settled. This is done for two reasons – first of all ASPE has no OCI, so there is no mismatch for fair value type hedges. And since there is no OCI, there is no other alternatives for reporting the income on the derivatives, and so the company does not have to report them at all until settled, eliminating any mismatch. Finally, the disclosure under ASPE is greatly reduced in comparison to IFRS. The reason for this is the nature of the limited users for private company reports. Solutions Manual 16-121 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-8 (a) The put option contract is entered into to protect from a potential loss on an investment. By purchasing the put option for SIT Ltd. shares, RIT Co. can protect itself against the risk of a decrease in the share price. RIT Co. is effectively locking in the share price at $100 per share and therefore its investment cannot fall below $500,000. This is a hedge. (b) RIT Co. would record an asset of $10,000 on the balance sheet for the put option. The option is a derivative that will be recorded at FV-NI. When the share price falls to $90 per share, RIT Co. would revalue the put option and recognize a gain (through net income). (c) The accounting is transparent since the risk of loss in the value of the investment is offset by the potential for gain on the option. There is a hedge. The gains and losses on the investment will be offset by corresponding but opposite gains and losses on the put (through net income if ASPE is followed). Under IFRS, the result would be the same if the company were to use FVNI accounting for the investment. The company has the option of using FVOCI for the investment but then might want to use hedge accounting to reflect the hedge. The hedge accounting would allow the gains/losses on the investment to be booked through income. However, hedge accounting is costly and therefore if possible, the company would use FV-NI accounting for the investment right from acquisition. Solutions Manual 16-122 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition WA 16-9 Hedging and speculation both involve taking a position in a derivative which will result in fluctuating values dependent on future events or results. Hedgers will usually undertake the derivative as an opposite position to another derivate they are trying to hedge against. The purpose of hedging is to try to eliminate the future volatility caused by price fluctuation in the hedged item. In an ideal scenario, any price changes in the derivative will fully offset the changes in the underlying hedged item, thus protecting the hedger from any future price fluctuations. Speculation undertakes a derivative in order to gain from future market fluctuations. The speculator will invest in an asset with the anticipation of market changes and will profit when the market moves in the desired direction. Speculators will be at risk if market conditions move in the opposite direction. This is because the derivatives they invest in are not matched or ‘hedged’ by an offsetting derivative in their portfolio. Overall, the actions of speculators and hedgers are the same, investing in derivatives dependent on future market conditions, however the intent of the actions are different, speculators betting on future economic fluctuations and hedgers eliminating the risk of future fluctuations. Solutions Manual 16-123 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition RESEARCH AND FINANCIAL ANALYSIS RA16-1 POTASH CORPORATION OF SASKATCHEWAN Inc. (a) Stock Option Plans a) Who is eligible? b) Required to buy shares to access benefits? c) What is the benefit or compensation based on? d) Vesting period Designated senior executives, employees, and designated directors Yes for stock based settled plans – company issues new shares to settle the options e) Expiry period Share price Performance Option Plans vest, if at all, on the three-year average excess of the company’s consolidated cash flow return on investment over the weighted average cost of capital Directors, Officers and Employee Plans - one half vested one year from date of grant, and the other half vesting in the following year Term is 10 years f) How is compensation expense determined? g) Offsetting amount Uses Black-Scholes formula to determine the fair value of the options To contributed surplus h) When is compensation expense recorded? Over the vesting period Solutions Manual 16-124 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition RA16-1 (Continued) Deferred Share Unit Plans a) Who is eligible? b) Required to buy shares to access benefits? c) What is the benefit or compensation based on? d) Vesting period Non-employee directors No - settled in cash - based on the common share price at the time Share price of the units, and performance of shares relative to market peers f) How is compensation expense determined? g) Offsetting amount Fully vest upon award, but not distributed until directors leave Cash payable when directors leave the Board Uses market value of the share units (i. e., share price X number of DSUs) To liabilities h) When is compensation expense recorded? Immediately when issued adjusted until cash is settled e) Expiry period Solutions Manual 16-125 and Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition RA16-1 (Continued) Performance Unit Incentive plan a) Who is eligible? b) Required to buy shares to access benefits? c) What is the benefit or compensation based on? d) Vesting period e) Expiry period f) How is compensation expense determined? g) Offsetting amount h) When is compensation expense recorded? (b) Senior executives and other key employees No - settled in cash based on the common share price at the time Share price of the units, and some incentive award based on meeting targets One half of the vesting of awards is based on increases in the total return to shareholders over the three-year performance period ending December 31, 2011 The other half vests to the extent that total shareholder return matches or exceeds that of a peer group Shareholders’ return is the capital appreciation of the share price plus dividends paid. Payable in cash when performance period ends Uses market value of the share units To liabilities Over the three-year performance period and is adjusted as required based on meeting performance targets As explained in Note 23 of the financial statements, the stock-based compensation plans are reported at fair values. The compensation expense is charged to earnings, and the offsetting entry is either to contributed surplus for equity settled plans or liabilities for cash settled plans. Any consideration received on the exercise of options is recorded to Solutions Manual 16-126 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition share capital, along with the contributed surplus related to the options. As per note 23, RA16-1 (Continued) $24 million was charged to compensation expense for the year for all the plans. As per the Consolidated Statements of Changes in Equity, contributed surplus was decreased by $9 million due to stock-based plans. The remaining amount of $33 million would be included in liabilities. (c) The fair value of stock option plans is determined using the Black-Scholes option pricing model. Inputs to this option pricing model are subject to estimates and include: the expected dividend, expected volatility, risk-free rate, and the expected life of the options. The table below outlines how these inputs have changed over time: 2011 2010 2009 2008 Expected dividend $.28 $.13 $.13 $.13 Expected volatility 52% 50% 48% 34% Risk-free rate 2.29% 2.61% 2.53% 3.30% 5.5 5.9 5.9 5.8 Expected life of the options In Note 23, the company comments that the expected dividend is based on the annualized dividend at the grant date; the expected volatility is based on historical data over the expected life of the options; the risk-free rate is based on the implied yield on zero-coupon government bonds issued with a remaining term equal to the expected life of the options; and based on past experience, the expected life of the options is estimated. Holding all other inputs constant, the following would be the impact on the compensation expense for changes in each input: Solutions Manual 16-127 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition (a) increases in the dividend rate will reduce the value of the option since as dividends are paid, the share price declines; RA16-1 (Continued) (b) increases in the expected volatility will increase the value of the option since there is now a greater chance that a higher price can be realized; (c) decreases in the risk-free rate will decrease the value of the option; and (d) decreases in the expected life of the options will decrease the value of the options since there is less time for the share price increases to be realized. Solutions Manual 16-128 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy RA16-2 Intermediate Accounting, Tenth Canadian Edition CANADIAN TIRE CORPORATION (a) Read MD&A. (b) The company is exposed to a number of different business risks. Seasonality risk refers to the risk associated with the sales of items which have a seasonal market, and the demand of which can be affected by weather. Supply chain disruption risk refers to the potential disruptions due to foreign supplier failures, geopolitical risk, labour disruption or insufficient capacity at ports, and risks of delays or loss of inventory in transit. Environmental risk refers to the risks associated with handling gas, oil, propane, and recycling things such as tires, paint, oil, and lawn chemicals. The company is also exposed to financial risks. Credit risk comprises two items—risk exposure from receivables from dealers and exposure with respect to hedges and similar financial instruments. The first one represents the loss that would be incurred if the company’s counterparties were to default and includes consumer credit risk (the risk of non-collection associated with offering customers sales on credit terms). Foreign exchange risk is the risk associated with fluctuations in US dollar currency exchange rates due to global sourcing for merchandise. Commodity price risk refers to the risk associated with the fluctuation of petroleum prices which can also impact the company’s earnings. Interest rate risk is the risk associated with changes in interest rates which impact the company’s investments. (c) To manage foreign exchange risk, the company sets ranges of future US dollar purchases that must be hedged. Historically, the company has been able to achieve some stability since some US dollar purchases were hedged at exchange rates more favourable than spot rates at the time of the transactions. To manage interest rate risk, the company uses interest rate swaps. The company has a policy to maintain a minimum of 75% of its long-term debt in fixed rate debt versus variable. Solutions Manual 16-129 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition RA16-2 (Continued) (d) As per note 3, the derivative instruments used by the company to hedge its risks are interest rate swap contracts, foreign exchange contracts, and equity contracts. As further explained in Note 3, the company has both fair value hedges and cash flow hedges. Fair value hedges are used for certain interest rate swaps. Cash flow hedges are used for foreign currency contracts for future purchases of inventory-related items. When the inventory is recognized, the value of the merchandise inventory is adjusted by the accumulated gains and losses on these foreign currency contracts. Equity derivative contracts are also cash flow hedges used to hedge various future stock-based compensation. As the stock-based plans vest, the amount of accumulated gains and losses on these equity derivatives is transferred to income. (e) As explained in Note 39, the company measures the fair value of the derivatives using Level 2 inputs. Total derivatives represented as assets were $20.2 million and as liabilities were $6.7 million. These values are designated as cash flow hedges and fair value hedges as follows: $ millions Assets Liabilities Solutions Manual Cash flow hedges 14.6 1.8 Fair value hedges 5.6 4.9 16-130 Not designated 0.0 0.0 Total 20.2 6.7 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy RA16-3 Intermediate Accounting, Tenth Canadian Edition LOBLAW COMPANIES LIMITED (a) Note 19 describes the Second Preferred shares as follows: • 9 million shares issued • Face value of $225 million, and originally issued at $218 million • Non-voting; • 5.95% dividend – fixed cumulative dividend of $1.4875 per share per annum (if declared) payable quarterly; • After July 31, 2013, the company may, at its option, redeem the shares for cash at the price of $25.75 per share on or after July 31, 2013; $25.50 on or after July 31, 2014; and $25.00 on or after July 31, 2015. • After July 31, 2013, the company may also convert, at its option, the preferred shares into the number of common shares determined by taking the required redemption price divided by the greater of $2.00 and 95% of the then current market price of the common share price. • The second preferred shares rank after the first preferred shares and rank in priority to the common shares with respect to dividends and dissolution of the company. The company has recorded these shares as a liability since they may be redeemed for cash. The company has used the effective interest rate method to measure these securities. (b) The shares were originally issued for $218 million as per note 19. At December 31, 2011, the shares were measured at $222 million and are classified as Capital Securities on the statement of financial position. Effectively, the discount is being amortized until the face value is reached in 2013. (c) As per note 3, the dividends paid on these capital securities were included in “Interest and other financing charges”. The total amount paid during the year for the dividends as per note 19 was $13.3875 million ($1.4875 X 9 million shares). $14 million was recorded in interest expense, which would represent the actual amount paid plus the amortization of the discount to reflect the effective interest on the preferred shares. (d) As per note 20, the company includes these preferred shares as equity in its determination of capital. As a result, in calculating its Debt to Equity, Interest Coverage and Net Debt to EBITDA ratios, the Capital Securities are excluded from debt, and included in equity. Solutions Manual 16-131 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy RA16-4 Intermediate Accounting, Tenth Canadian Edition LUFTHANSA AG (a) Lufthansa AG is an international airline, headquartered in Germany. It flies passengers and freight around the world. During 2011, the company flew 100.6 million passengers and 2.1 million tonnes of freight on 1,050 thousand flights. (b) The company is exposed to fuel price risk, interest rate risk, and foreign currency risk. The company monitors and manages these risks in a conservative and systematic manner. Lufthansa uses derivatives to manage these risks with the primary aim to reduce earnings volatility due to fuel price and foreign exchange rate fluctuations. Interest rate hedging is used to reduce and minimize fluctuations in the company’s interest expense. Fuel costs represent 20.6% of total costs. Therefore the company hedges fuel costs for up to the next 24 months, with 85% of the next 6 months hedged and 70% of the 2012’s forecasted usage being hedged. The company uses primarily option combinations for these fuel price hedges. Foreign currency risk arises from international tickets sales and purchases of fuel, aircraft, and spare parts. The company deals in 80 different currencies of which 20 are managed, primarily being the US dollar, the Japanese yen, and British sterling. Interest rate risk is managed using swaps to ensure that 85% of the debt rates are floating. (c) From Note 46, the following percentages of the risks are hedged: • Currency exposure for operating expenses: US dollar – 40%; yen 45% and sterling 75%; • Currency exposure for new capital expenditures varies from 85% to as high as 92% during the forecasted years for 2012 to 2016; • Interest rate risks are hedged to 15%; • Fuel price risk is hedged 70.3% for 2012 and 24.9% for 2013. Solutions Manual 16-132 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition RA16-4 (Continued) (d) The following table identifies the type of derivative and its designation as either a cash flow hedge or a fair value hedge. In millions of Euros Interest rate swaps Spread options for fuel hedging Hedging combinations for fuel hedging Futures contracts for foreign currency hedging Spread options for fuel hedging Fair Value hedge 119 Cash flow hedge 1 139 -2 -120 45 The fuel hedges and foreign currency hedges are all designated as cash flow hedges since they relate to anticipated future transactions related to purchases of fuel, operating costs, operating income and aircraft costs. The interest rate swaps are fair value hedges since the swap is on existing debt that is outstanding at the report date. (e) As explained in the Risks and Opportunities Report, the following explanations are provided as to how the market values of the derivatives have been determined: • All derivatives are valued at the price an independent party would pay (or receive) to take on the rights and /or obligations of the derivatives. • Interest rate swaps are measured using a discounted cash flow. • Currency derivatives are discounted based on their future rates and the corresponding interest rate yield curves. • Fuel price options are valued using option pricing models. (f) As per the Risks and Opportunities Report, during the year: • EUR 800 million was moved from equity to fuel costs, • For the foreign currency derivatives EUR 414 million was moved from equity to other operating income, EUR 516 million to other operating expenses, and EUR 63 to capital expenditures for aircraft. Solutions Manual 16-133 Chapter 16 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Solutions Manual 16-134 Intermediate Accounting, Tenth Canadian Edition Chapter 16 .

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