Ch16 Dilutif Dan Eps

Chapter 16-1

Chapter 16-2

C H A P T E R C H A P T E R 1616

DILUTIVE SECURITIES AND DILUTIVE SECURITIES AND EARNINGS PER SHAREEARNINGS PER SHARE

Intermediate Accounting13th Edition

Kieso, Weygandt, and Warfield

Chapter 16-3

Kewajiban dan Ekuitas Kewajiban dan Ekuitas

Kewajiban Konvertibel Kewajiban Konvertibel

Saham Preferen Saham Preferen Konvertibel Konvertibel

Waran Saham Waran Saham

Program Kompensasi Program Kompensasi Saham Saham

Sekuritas Dilutif dan Sekuritas Dilutif dan Program Kompensasi Program Kompensasi

Perhitungan Perhitungan

Earning Per Share Earning Per Share

Struktur Ekuitas Struktur Ekuitas Sederhana Sederhana

Struktur Ekuitas Struktur Ekuitas Kompleks Kompleks

Dilutive Securities and Earnings Per Dilutive Securities and Earnings Per ShareShare

Dilutive Securities and Earnings Per Dilutive Securities and Earnings Per ShareShare

Chapter 16-4

Perusahaan harus melaporkan

instrumen ini dalam kelompok

kewajiban atau ekuitas

Debt and EquityDebt and EquityDebt and EquityDebt and Equity

Opsi Saham Opsi Saham Saham Saham Konvertibel Konvertibel

Saham Saham PreferenPreferen

Chapter 16-5

Opsi pemegang saham

Manfaat obligasi (jaminan bunga )

Hak istimewa untuk menukar dengan saham

Obligasi yang dapat dikonversi menjadi sekuritas lainnya disebut Obligasi konvertibel.

+

Accounting for Convertible DebtAccounting for Convertible DebtAccounting for Convertible DebtAccounting for Convertible Debt

LO 1 Describe the accounting for the issuance, conversion, and retirement of convertible securities.

Chapter 16-6

Meningkatkan ekuitas tanpa pengendalian kepemilikan yang berlebihan

Memperoleh pembiayaan dengan saham biasa pada suku bunga yang rendah

Dua alasan utama perusahaan menerbitkan obligasi konvertibel



Chapter 16-7

Saat Penerbitan



Obligasi konvertibel dicatat seperti penerbitan

kewajiban langsung (tanpa mencatatnya dalam

Ekuitas)

Diskon atau Premiumnya diamortisasi hingga

tanggal jatuh tempo.

Chapter 16-8

BE16-1BE16-1:: KC Inc. issued $4,000,000 par value, 7% KC Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would not included the conversion feature, they would have sold for 95. have sold for 95.

Cash 3,960,000

Bonds payable

4,000,000

Journal entry at date of issuance:

Discount on bonds payable 40,000

($4,000,000 x 99% = $3,950,000)



Chapter 16-9

Saat Konversi



Perusahaan menggunakan metode nilai buku

ketika mengkonversi obligasi.

Ketika pemegang obligasi mengkonversi

obligasinya ke ekuitas, maka Perusahaan tidak

mencatat keuntungan atau kerugian atas

konversi tersebut.

Chapter 16-10

BE16-2BE16-2: Yuen Corp. has outstanding 2,000, $1,000 : Yuen Corp. has outstanding 2,000, $1,000

bonds, each convertible into 50 shares of $10 par value bonds, each convertible into 50 shares of $10 par value

common stock. The bonds are converted on December common stock. The bonds are converted on December

31, 2010, when the unamortized discount is $30,000 and 31, 2010, when the unamortized discount is $30,000 and

the market price of the stock is $21 per share. the market price of the stock is $21 per share.

Bonds payable 2,000,000

Common stock (2,000 x 50 x $10)

1,000,000

Journal entry at conversion:

Discount on bonds payable

30,000Additional paid-in capital

970,000



Chapter 16-11

Penerbit ingin merangsang konversi utang

konvertibelnya lebih cepat.

Penerbit menawarkan beberapa pertimbangan

tambahan yang disebut “pemanis”.

Pemanis ini harus dilaporkan sebagai beban

dalam periode berjalan.



Induced Conversion

Chapter 16-12

BE16-2BE16-2: Yuen Corp. has outstanding 2,000, $1,000 : Yuen Corp. has outstanding 2,000, $1,000 bonds, each convertible into 50 shares of $10 par value bonds, each convertible into 50 shares of $10 par value common stock. Assume Yuen wanted to reduce its common stock. Assume Yuen wanted to reduce its annual interest cost and agreed to pay the bond holders annual interest cost and agreed to pay the bond holders $70,000 to convert. $70,000 to convert.

Bonds payable 2,000,000

Common stock (2,000 x 50 x $10)

1,000,000

Journal entry at conversion:

Discount on bonds payable

30,000Additional paid-in capital

970,000



Debt conversion expense 70,000

Cash

70,000

Chapter 16-13

Pencatatannya sama dengan penarikan

kewajiban .

Selisih antara harga penarikan dengan nilai buku

harus dilaporkan dalam keuntungan atau

kerugian dalam laporan laba rugi komprehenshif



Penarikan Hutang Konvertibel

Chapter 16-14

Saham prefereren konvertibel merupakan bagian

dari ekuitas pemegang saham

Tidak ada keuntungan atau kerugian yang diakui

pada saat konversi.

Menggunakan nilai buku dalam pencatatannya

Convertible Preferred StockConvertible Preferred StockConvertible Preferred StockConvertible Preferred Stock

LO 2 Explain the accounting for convertible preferred stock.

Saham Preferen Konvertibel mencakup opsi

bagi pemegang saham untuk mengkonversi

sahamnya dengan saham biasa dengan jumlah

yang tetap.

Chapter 16-15

BE16-3BE16-3: Gall Inc. issued 2,000 shares of $10 par value : Gall Inc. issued 2,000 shares of $10 par value

common stock upon conversion of 1,000 shares of $50 common stock upon conversion of 1,000 shares of $50

par value preferred stock. The preferred stock was par value preferred stock. The preferred stock was

originally issued at $60 per share. The common stock is originally issued at $60 per share. The common stock is

trading at $26 per share at the time of conversion.trading at $26 per share at the time of conversion.

Preferred stock 50,000

Common stock (2,000 x $10 par)

20,000

Journal entry to record conversion:

Paid-in capital – Preferred stock 10,000

Paid-in capital – Common stock

40,000

Convertible Preferred StockConvertible Preferred StockConvertible Preferred StockConvertible Preferred Stock

LO 2 Explain the accounting for convertible preferred stock.

Chapter 16-16

Sertifikat yang memberikan hak kepada pemegangnya untuk memperoleh saham dengan pada harga tetentu selama periode yang telah ditetapkan.

Biasanya timbul dalam situasi berikut:

1.Meningkatkan daya tarik sekuritas

2.Hak istimewa untuk membeli saham biasa

terlebih dahulu

3.Sebagai kompensasi bagi karyawan

Stock WarrantsStock WarrantsStock WarrantsStock Warrants

LO 3 Contrast the accounting for stock warrants and for stock warrants issued with other securities.

Chapter 16-17

Diterbitkan bersama sekuritas lainnya



Waran saham yang dapat dipisahkan

Hasil penjualan dialokasikan di antara kedua

sekuritas

Dialokasikan berdasarkan nilai pasar wajar

Metode Alokasi :

(1) Metode Proporsional

(2) Metode inkremental

Chapter 16-18

Proportional Method



Ditetapkan :

1. Nilai obligasi tanpa waran dan

2. Nilai waran

Metode proporsional mengalokasikan hasil

penjualan dengan proporsi dua nilai, berdasarkan

nilai wajar

Chapter 16-19

BE16-4: Margolf Corp. issued 2,000, $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market value of $40. Use the proportional method to record the issuance of the bonds and warrants.

Number Amount Price Total PercentBonds 2,000 x 1,000$ x 0.98$ = 1,960,000$ 96%Warrants 2,000 x 40$ = 80,000 4%

Total Fair Market Value 2,040,000$ 100%

Allocation: Bonds WarrantsIssue price 2,020,000$ 2,020,000$ Bond face value 2,000,000$ Allocation % 96% 4% Allocated FMV 1,940,784 Total 1,940,784$ 79,216$ Discount 59,216$


LO 3

Chapter 16-20

CashCash 2,020,0002,020,000

Bonds payable Bonds payable

2,000,0002,000,000

Discount on bonds payableDiscount on bonds payable 59,21659,216

Paid-in capital – Stock warrants Paid-in capital – Stock warrants

79,21679,216

BE16-4: Margolf Corp. issued 2,000, $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market value of $40. Use the proportional method to record the issuance of the bonds and warrants.



Chapter 16-21

Metode Inkremental



Diberlakukan Jika Perusahaan tidak dapat

menentukan salah satu dari nilai wajar waran

atau obligasi.

Menggunakan sekuritas yang nilai pasarnya

diketahui.

Sisa harga beli dialokasikan ke dalam

sekuritas yang nilai wajarnya tidak diketahui

Chapter 16-22

BE16-5: McCarthy Inc. issued 2,000, $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98. The market price of the warrants, without the bonds, cannot be determined. Use the incremental method to record the issuance of the bonds and warrants.

Number Amount Price Total PercentBonds 2,000 x 1,000$ x 0.98$ = 1,960,000$ 100%Warrants 2,000 x = - 0%

Total Fair Market Value 1,960,000$ 100%

Allocation: BondsIssue price 2,020,000$ Bond face value 2,000,000$ Bonds 1,960,000 Allocated FMV 1,960,000 Warrants 60,000$ Discount 40,000$



Chapter 16-23

CashCash 2,020,0002,020,000

Bonds payable Bonds payable

2,000,0002,000,000

Discount on bonds payableDiscount on bonds payable 40,00040,000

Paid-in capital – Stock warrants Paid-in capital – Stock warrants

60,00060,000



BE16-5: McCarthy Inc. issued 2,000, $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98. The market price of the warrants, without the bonds, cannot be determined. Use the incremental method to record the issuance of the bonds and warrants.

Chapter 16-24

Pertanyaan Konseptual



Waran yang bisa dipisahkan

Sekuritas Hutang

Waran untuk membeli saham biasa

Waran yang tidak dapat dipisahkan

Tidak ada alokasi hasil penjualan kepada obligasi dan waran

Perusahaan mencatat sebagai kewajiban

Chapter 16-25

Hak untuk memesan saham tambahan



Hak saham – bagi pemegang saham yang memiliki

hak istimewa untuk membeli saham yang baru

diterbitkan dengan proporsi yang mereka miliki.

Harga yang ditawarkan biasanya lebih rendah

dari pada harga pasar.

Perusahaan hanya mencatat dalam memo

(tidak dijurnal)

Chapter 16-26

LO 4 Describe the accounting for stock compensation plans under generally accepted accounting principles.

Opsi Saham – Memberikan opsi kepada karyawan kunci untuk membeli saham pada harga yang sudah ditentukan dalam periode yang diperpanjang.

Program kompensasi ini efektif untuk :

1. Kompensasi atas kinerja karyawan

2. Memotivasi karyawan

3. Membantu mempertahankan eksekutif dan perekrutan bakat baru.

4. Maksimalisasi tunjangan setelah pajak.

5. Menggunakan kriteria kinerja pada karyawan yang punya kendali.

Program Kompensasi Saham

Accounting for Stock CompensationAccounting for Stock CompensationAccounting for Stock CompensationAccounting for Stock Compensation

Chapter 16-27



E16-12 1 januari 2009 Scooby Corporation mengeluarkan 10,000 lembar opsi kepada manajer kunci. Opsi tersebut dapat ditukar dengan satu lembar saham biasa Scooby dengan nilai pari $5 dengan harga $20 per lembar. Opsi ini berlaku sebagai kompensasi bagi pegawai selama 2 tahun, jika pada 1 Januari 2011 pemegang opsi masih merupakan karyawan perusahaan,. Saat penukaran tersebut, saham biasa Scooby dijual $25 per lembar dengan biaya kompensasi $450,000.Pada 1 Mei 2011, 9000 opsi diambil ketika harga pasar saham biasa $30 per lembar. Opsi lainnya dianggap hangus pada tahun 2003 karena menajer tidak mengambil opsi mereka. Instruksi: Buat jurnal yang dibutuhkan berhubungan dengan program opsi saham di atas selama 2009 sampai 2013.

Chapter 16-28

No entry on date of grant.No entry on date of grant.

E16-12: Prepare the necessary journal entries related to the stock option plan for the years 2009 through 2013.


1/1/091/1/09

Biaya Kompensasi Biaya Kompensasi 225,000225,000

Modal Disetor-Opsi Saham Modal Disetor-Opsi Saham

225,000225,000

12/31/0912/31/09

Biaya Kompensasi Biaya Kompensasi 225,000225,000

Modal Disetor-Opsi Saham Modal Disetor-Opsi Saham

225,000225,000

12/31/1012/31/10

($450,000 x ½)


Chapter 16-29


Kas Kas (9,000 x $20)(9,000 x $20) 180,000180,000

Saham Biasa Saham Biasa (9,000 x $5)(9,000 x $5)

45,00045,000

5/1/115/1/11

Modal Disetor-Opsi Saham Modal Disetor-Opsi Saham 45,00045,000Modal Disetor-Opsi Saham KadaluarsaModal Disetor-Opsi Saham Kadaluarsa

45,00045,000

1/1/131/1/13

($450,000 x 9,000 / 10,000 = $405,000)

Modal Disetor-Opsi Saham Modal Disetor-Opsi Saham 405,000405,000

Agio Saham Biasa Agio Saham Biasa

540,000540,000

($450,000 – $405,000)


E16-12: Prepare the necessary journal entries related to the stock option plan for the years 2009 through 2013.

Chapter 16-30



Illustration: 1 Januari 2010, Ogden Company

menerbitkan 1,000 lembar restricted stock kepada

manajernya, Christie DeGeorge. Saham Ogden Company

memiliki nilai wajar $20 per lembar pada 1 Januari 2010.

Informasi tambahannya adalah sebagai berikut :

1. Periode jasa sesuai dengan restricted stock yaitu 5

tahun

2. Kesepakatan tersebut berlaku jika pada 5 tahun

mendatang DeGeorge masih bekerja pada

Perusahaan tsb

3. Nilai pari saham tersebut adalah $1 per lembar.

Chapter 16-31



Illustration: Ogden makes the following entry on the grant date (January 1, 2010).

Kompensasi yang belum Direalisasi 20,000

Saham Biasa (1,000 x $1)

1,000

Agio Saham Biasa (1,000 x $19)

19,000Unearned Compensation represents the cost of services yet to be performed, which is not an asset. Unearned Compensation is reported as a component of stockholders’ equity in the balance sheet.

Chapter 16-32



Illustration: Record the journal entry at December 31, 2010, Ogden records compensation expense.

Compensation expense 4,000

Unearned compensation

4,000

Ogden records compensation expense of $4,000 for each of the next four years (2011, 2012, 2013, and 2014).

Chapter 16-33



Illustration: Asumsikan bahwa DeGeorge resign pada pada February 3, 2012 (sebelum biaya kompensasi telah dicatat seluruhnya selama 2012). Jurnal yang dibuat adalah sebagai berikut :

Common Stock 1,000

Paid-in Capital in Excess of Par 19,000

Compensation Expense ($4,000 x 2)

8,000

Unearned Compensation

12,000

Chapter 16-34 LO 6 Compute earnings per share in a simple capital

structure.

Earnings Per Share-Simple Capital Earnings Per Share-Simple Capital StructureStructure


Struktur Modal Seerhana –Hanya saham

biasa, tidak berpotensi memiliki sekuritas

dilutif

Struktur Modal Kompleks –Berpotemsi

untuk memiliki Sekuritas Dilutif


structure.



Deviden Saham Preferen

Deviden saham preferen tahun berjalan dikurangi dari laba bersih untuk memperoleh laba yang tersedia untuk pemegang saham biasa.

Illustration 16-Illustration 16-88


structure.



E16-16: 1 Januari 2010, Chang Corp. mempunyai 480,000 lembar saham biasa yang beredar. Transaksi yang terjadi selama 2010 adalah sebagai berikut :

February 1 I ssued 120,000 Shares

March 1 I ssued a 20% stock dividend

May 1 Acquired 100,000 share of treasury stock

J une 1 I ssued a 3-f or-1 stock split

October 1 Reissued 60,000 shares of treasury stock

Instructions Hitunglah rata-rata tertimbang saham yang beredar pada 31 Desember 2010


structure.



Weighted-Average Number of SharesWeighted

Change in Shares Fraction 20% 3/1 AverageDate Shares Outstanding of Year Dividend Split Shares

Jan. 1 480,000 x 1/12 x 120% x 3 144,000 Feb. 1 120,000 600,000 x 1/12 x 120% x 3 180,000 Mar. 1 120,000 720,000 x 2/12 x 3 360,000 May 1 (100,000) 620,000 x 1/12 x 3 155,000 June 1 3/1 split 1,860,000 x 4/12 x 620,000 Oct. 1 60,000 1,920,000 x 3/12 x 480,000

1,939,000

Fraction of Year : Lamanya jumlah saham dimiliki dengan perbandingan Fraction of Year : Lamanya jumlah saham dimiliki dengan perbandingan satu tahun satu tahun

Chapter 16-38 LO 7 Compute earnings per share in a complex capital

structure.

Earnings Per Share-Complex Capital Earnings Per Share-Complex Capital StructureStructure


Diluted EPS includes the effect of all potential dilutive common shares that were outstanding during the period.

Companies will not report diluted EPS if the securities in their capital structure are antidilutive.

Illustration 16-17Illustration 16-17

Chapter 16-39

Diluted EPS – Convertible Securities

Measure the dilutive effects of potential conversion on EPS using the if-converted method.This method for a convertible bond assumes:

(1) the conversion at the beginning of the period

(or at the time of issuance of the security, if

issued during the period), and

(2) the elimination of related interest, net of tax.

LO 7 Compute earnings per share in a complex capital structure.




structure.



E16-22 (Convertible Bonds): In 2010 Buraka Enterprises issued, at par, 75, $1,000, 8% bonds, each convertible into 100 shares of common stock. Buraka had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2011. (Assume that the tax rate is 40%.) Throughout 2011, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed.

Instructions

(a) Compute diluted earnings per share for 2011.

(b) Assume same facts as those for Part (a), except the 75 bonds were issued on September 1, 2011 (rather than in 2010), and none have been converted or redeemed.


structure.



E16-22 (a) Compute diluted earnings per share for 2011.

Calculation of Net Calculation of Net IncomeIncome

RevenuesRevenues $17,500$17,500

ExpensesExpenses 8,4008,400

Bond interest expense Bond interest expense (75 x $1,000 x 8%)(75 x $1,000 x 8%) 6,0006,000

Income before taxesIncome before taxes 3,1003,100

Income tax expense Income tax expense (40%)(40%) 1,2401,240

Net incomeNet income $ 1,860$ 1,860


structure.




When calculating Diluted EPS, begin with Basis EPS.

Net income = $1,860

Weighted average shares = 2,000

== $.93$.93

Basic EPS


structure.





$1,860

2,000== $.57$.57

Diluted EPS

++ $6,000 (1 - .40)

7,500

Basic EPS = .93

$5,460

9,500==

Effect on EPS = .48

++


structure.



Revenues 17,500$

Expenses 8,400

Bond interest expense (75 x $1,000 x 8% x 4/ 12) 2,000

I ncome bef ore taxes 7,100

I ncome taxes (40%) 2,840

Net income 4,260$

Calculation of Net Calculation of Net IncomeIncome

E16-22 (b) Assume bonds were issued on Sept. 1, 2011 .


structure.



E16-22 (b) Assume bonds were issued on Sept. 1, 2011 .


$4,260

2,000== $1.21$1.21

Diluted EPS

$2,000 (1 - .40)

7,500 x 4/12 yr.

$5,460

4,500==

Effect on EPS = .48Basic EPS

= 2.13

++

++


structure.



P16-8 (Variation-Convertible Preferred Stock): Prior to 2010, Barkley Company issued 40,000 shares of 6% convertible, cumulative preferred stock, $100 par value. Each share is convertible into 5 shares of common stock. Net income for 2010 was $1,200,000. There were 600,000 common shares outstanding during 2010. There were no changes during 2010 in the number of common or preferred shares outstanding.

Instructions

(a) Compute diluted earnings per share for 2010.


structure.



P16-8 (a) Compute diluted earnings per share for 2010.


Net income $1,200,000 – Pfd. Div. $240,000*

Weighted average shares = 600,000==$1.60$1.60

Basic EPS

** 40,000 shares x $100 par x 6% = $240,000 40,000 shares x $100 par x 6% = $240,000 dividenddividend


structure.




600,000==

$1.50$1.50

Diluted EPS

$240,000

Basic EPS = 1.60

==

Effect on EPS = 1.20

P16-8 (a) Compute diluted earnings per share for 2010.

$1,200,000 – $240,000

200,000*

$1,200,000

800,000

**(40,000 x 5)(40,000 x 5)

++

++


structure.



600,000==

$1.67$1.67

Diluted EPS

$240,000

Basic EPS = 1.60

==


P16-8 (a) Compute diluted earnings per share for 2010 assuming each share of preferred is convertible into 3 shares of common stock.

$1,200,000 – $240,000

120,000*

$1,200,000

720,000

**(40,000 x 3)(40,000 x 3)

++

++


structure.



600,000==

$1.67$1.67

Diluted EPS

$240,000

Basic EPS = 1.60

==


$1,200,000 – $240,000

120,000*

$1,200,000

720,000

**(40,000 x 3)(40,000 x 3)

Antidilutive

Basic = Diluted EPS

P16-8 (a) Compute diluted earnings per share for 2010 assuming each share of preferred is convertible into 3 shares of common stock.

++

++

Chapter 16-51

Diluted EPS – Options and Warrants

Measure the dilutive effects of potential conversion using the treasury-stock method.

This method assumes:

(1) company exercises the options or warrants at the beginning of the year (or date of issue if later), and

(2) that it uses those proceeds to purchase common stock for the treasury.





structure.



E16-26 (EPS with Options): Zambrano Company’s net income for 2010 is $40,000. The only potentially dilutive securities outstanding were 1,000 options issued during 2009, each exercisable for one share at $8. None has been exercised, and 10,000 shares of common were outstanding during 2010. The average market price of the stock during 2010 was $20.

Instructions

(a) Compute diluted earnings per share.

(b) Assume the 1,000 options were issued on October 1, 2010 (rather than in 2009). The average market price during the last 3 months of 2010 was $20.

Chapter 16-53

Proceeds if shares issued Proceeds if shares issued (1,000 x $8)(1,000 x $8) $8,000$8,000

Purchase price for treasury sharesPurchase price for treasury shares $20$20

Shares assumed purchasedShares assumed purchased 400400

Shares assumed issuedShares assumed issued 1,0001,000

Incremental share increaseIncremental share increase 600600





Treasury-Stock MethodTreasury-Stock Method

÷÷


structure.





$40,000

10,000== $3.77$3.77

Diluted EPS

++

600

Basic EPS = 4.00

$40,000

10,600==

Options

++


structure.



Proceeds if shares issued (1,000 x $8) 8,000$

Purchase price f or treasury shares 20$

Shares assumed purchased 400

Shares assumed issued 1,000

I ncremental share increase 600

Weight f or 3 months assumed outstanding 3/ 12

Weighted incremental share increase 150

Treasury-Stock MethodTreasury-Stock Method

÷÷

E16-26 (b) Compute diluted earnings per share assuming the 1,000 options were issued on October 1, 2010.

xx


structure.



E16-26 (b) Compute diluted earnings per share assuming the 1,000 options were issued on October 1, 2010.

$40,000

10,000== $3.94$3.94

Diluted EPS

150

Basic EPS = 4.00

$40,000

10,150==

Options

++

Chapter 16-57

Contingent Issue Agreement

Contingent shares are issued as a result of the:

1. passage of time or

2. attainment of a certain earnings or market price level.




Antidilution Revisited

Ignore antidilutive securities in all calculations and in computing diluted earnings per share.

Chapter 16-58

EPS Presentation and Disclosure

A company should show per share amounts for:

income from continuing operations,

income before extraordinary items, and

net income.

Per share amounts for a discontinued operation or an extraordinary item should be presented on the face of the income statement or in the notes.





structure.



Complex capital structures and dual presentation of EPS require the following additional disclosures in note form.

1. Description of pertinent rights and privileges of the various securities outstanding.

2. A reconciliation of the numerators and denominators of the basic and diluted per share computations, including individual income and share amount effects of all securities that affect EPS.

3. The effect given preferred dividends in determining income available to common stockholders in computing basic EPS.

4. Securities that could potentially dilute basic EPS in the future that were excluded in the computation because they would be antidilutive.

5. Effect of conversions subsequent to year-end, but before issuing statements.


structure.

Summary of EPS ComputationSummary of EPS ComputationSummary of EPS ComputationSummary of EPS Computation


Chapter 16-61 LO 7


Summary of EPS Summary of EPS ComputationComputation

Summary of EPS Summary of EPS ComputationComputation

Chapter 16-62

Under U.S. GAAP, all of the proceeds of convertible debt are recorded as long-term debt. Under iGAAP, convertible bonds are “bifurcated”—separated into the equity component (the value of the conversion option) of the bond issue and the debt component.

Although the calculation of basic and diluted earnings per share is similar between iGAAP and U.S. GAAP, the Boards are working to resolve the few minor differences in EPS reporting.

Other EPS differences relate to (1) the treasury-stock method and how the proceeds from extinguishment of a liability should be accounted for, and (2) how to compute the weighted-average of contingently issuable shares.

Chapter 16-63 LO 8 Explain the accounting for stock appreciation rights plans.LO 8 Explain the accounting for stock appreciation rights plans.

Stock-Appreciation Rights (SARs):

The company gives an executive the right to receive

compensation equal to the share appreciation.

Share appreciation is the excess of the market price

of the stock at the date of exercise over a pre-

established price.

The company may pay the share appreciation in cash,

shares, or a combination of both.

The accounting for stock-appreciation rights depends

on whether the company classifies the rights as equity

or as a liability.


SARS— Share-Based Equity Awards

Companies classify SARs as equity awards if at the date of

exercise, the holder receives shares of stock from the

company upon exercise.

holder receives shares in an amount equal to the share-

price appreciation (the difference between the market

price and the pre-established price).

At the date of grant, the company determines a fair

value for the SAR and then allocates this amount to

compensation expense over the service period of the

employees.


SARS— Share-Based Liability Awards

Companies classify SARs as liability awards if at the date of

exercise, the holder receives a cash payment. Accounting:

1. Measure the fair value of the award at the grant date and

accrue compensation over the service period.

2. Remeasure the fair value each reporting period, until the award

is settled; adjust the compensation cost each period for

changes in fair value pro-rated for the portion of the service

period completed.

3. Once the service period is completed, determine compensation

expense each subsequent period by reporting the full change in

market price as an adjustment to compensation expense.


Illustration: American Hotels, Inc. establishes a

stock-appreciation rights plan on January 1, 2010. The

plan entitles executives to receive cash at the date of

exercise for the difference between the market price of

the stock and the pre-established price of $10 on

10,000 SARs. The fair value of the SARs on December

31, 2010, is $3, and the service period runs for two

years (2010–2011).

Illustration 16A-1 indicates the amount of

compensation expense to be recorded each period.


Illustration 16-Illustration 16-A1A1

American Hotels records compensation expense in the first year as follows.

Compensation Expense 15,000

Liability under Stock-Appreciation Plan

15,000


In 2012, when it records negative compensation expense,

American would debit the account for $20,000. The entry

to record the negative compensation expense is as follows.

Liability under Stock-Appreciation Plan 20,000

Compensation Expense

20,000

At December 31, 2012, the executives receive $50,000.

American would remove the liability with the following entry.

Liability under Stock-Appreciation Plan 50,000

Cash

50,000

Chapter 16-69 LO 9 Compute earnings per share in a complex situation.LO 9 Compute earnings per share in a complex situation.

Illustration 16-Illustration 16-B1B1

Balance Sheet for Comprehensive Illustration

Chapter 16-70


Balance Sheet for Comprehensive Illustration

LO 9 Compute earnings per share in a complex situation.LO 9 Compute earnings per share in a complex situation.

Chapter 16-71


Computation of Earnings per Share—Simple Capital Structure

Solution on Solution on notes pagenotes page LO 9 Compute earnings per share in a complex LO 9 Compute earnings per share in a complex

situation.situation.

Chapter 16-72

Diluted Earnings Per Share

Steps for computing diluted earnings per share:

1. Determine, for each dilutive security, the per share effect assuming exercise/conversion.

2. Rank the results from step 1 from smallest to largest earnings effect per share.

3. Beginning with the earnings per share based upon the weighted-average of common shares outstanding, recalculate earnings per share by adding the smallest per share effects from step 2. Continue this process so long as each recalculated earnings per share is smaller than the previous amount.


Chapter 16-73

The first step is to determine a per share effect for each potentially dilutive security.

Per Share Effect of Options (Treasury-Stock Method), Diluted Earnings per Share



Chapter 16-74


Per Share Effect of 8% Bonds (If-Converted Method), Diluted Earnings per Share



Chapter 16-75


Per Share Effect of 10% Bonds (If-Converted Method), Diluted Earnings per Share



Chapter 16-76


Per Share Effect of 10% Convertible Preferred (If-Converted Method), Diluted Earnings per Share



Chapter 16-77


Ranking of per Share Effects (Smallest to Largest), Diluted Earnings per Share



Chapter 16-78

The next step is to determine earnings per share giving effect to the ranking

Recomputation of EPS Using Incremental Effect of Options



The effect of the options is dilutive.

Chapter 16-79


Recomputation of EPS Using Incremental Effect of 8% Convertible Bonds Illustration 16-Illustration 16-

B9B9


The effect of the 8% convertible bonds is dilutive.

Chapter 16-80


Recomputation of EPS Using Incremental Effect of 10% Convertible Bonds Illustration 16-Illustration 16-

B10B10


The effect of the 10% convertible bonds is dilutive.

Chapter 16-81


Recomputation of EPS Using Incremental Effect of 10% Convertible Preferred Illustration 16-Illustration 16-

B11B11


The effect of the 10% convertible preferred is NOT dilutive.

Chapter 16-82

Finally, Webster Corporation’s disclosure of earnings pershare on its income statement.



The effect of the 10% convertible preferred is NOT dilutive.

Chapter 16-83

Assume that Barton Company provides the following information. Illustration 16-Illustration 16-

B13B13


Barton Company Data

Basic and Diluted EPS


Chapter 16-84

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