Post on 31-Dec-2015
15-4
Bonds are a form of interest-bearing notes payable.
Three advantages over common stock:
SO 1 Explain why bonds are issued.
1. Stockholder control is not affected.
2. Tax savings result.
3. Earnings per share may be higher.
Bond Basics
15-5
Effects on earnings per share—stocks vs. bonds.
SO 1 Explain why bonds are issued.
Illustration 15-2
Bond Basics
15-6
Major disadvantages resulting from the use of bonds are:
a. that interest is not tax deductible and the principal
must be repaid.
b. that the principal is tax deductible and interest must
be paid.
c. that neither interest nor principal is tax deductible.
d. that interest must be paid and principal repaid.
Question
SO 1 Explain why bonds are issued.
Bond Basics
15-7
Secured and Unsecured (debenture) bonds.
Term and Serial bonds.
Registered and Bearer (or coupon) bonds.
Convertible and Callable bonds.
SO 1 Explain why bonds are issued.
Bond Basics
Types of Bonds
15-8
State laws grant corporations the power to issue bonds.
Board of directors and stockholders must approve bond
issues.
Board of directors must stipulate number of bonds to be
authorized, total face value, and contractual interest rate.
Bond contract known as a bond indenture.
Paper certificate, typically a $1,000 face value.
SO 1 Explain why bonds are issued.
Bond Basics
Issuing Procedures
15-9
Represents a promise to pay:
► sum of money at designated maturity date, plus
► periodic interest at a contractual (stated) rate on the
maturity amount (face value).
Interest payments usually made semiannually.
Generally issued when the amount of capital needed is
too large for one lender to supply.
SO 1 Explain why bonds are issued.
Bond Basics
Issuing Procedures
15-10 SO 1 Explain why bonds are issued.
MaturityDate
MaturityDate
Illustration 15-3
Contractual Interest
Rate
Contractual Interest
Rate
Face or Par ValueFace or
Par Value
Bond BasicsIssuer of
BondsIssuer of
Bonds
15-11
Determining the Market Value of Bonds
SO 1 Explain why bonds are issued.
The features of a bond (callable, convertible, and so on) affect the market rate of the bond.
Bond Basics
Market value is a function of the three factors that determine present value:
1. dollar amounts to be received,
2. length of time until the amounts are received, and
3. market rate of interest.
15-12
Corporation records bond transactions when it
issues (sells),
retires (buys back) bonds and
when bondholders convert bonds into common stock.
NOTE: If bondholders sell their bond investments to other investors,
the issuing firm receives no further money on the transaction, nor
does the issuing corporation journalize the transaction.
Accounting for Bond Issues
SO 2 Prepare the entries for the issuance of bonds and interest expense.
15-13
Issue at Par, Discount, or Premium?
Accounting for Bond Issues
SO 2 Prepare the entries for the issuance of bonds and interest expense.
Illustration 15-4
Bond
Contractual
Interest Rate
of 10%
15-14 SO 2 Prepare the entries for the issuance of bonds and interest expense.
The rate of interest investors demand for loaning funds to
a corporation is the:
a. contractual interest rate.
b. face value rate.
c. market interest rate.
d. stated interest rate.
Accounting for Bond Issues
Question
15-15 SO 2 Prepare the entries for the issuance of bonds and interest expense.
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:
a. the contractual interest rate exceeds the market interest rate.
b. the market interest rate exceeds the contractual interest rate.
c. the contractual interest rate and the market interest rate are the same.
d. no relationship exists between the two rates.
Question
Accounting for Bond Issues
15-16
Illustration: On January 1, 2012, Candlestick Corporation
issues $100,000, five-year, 10% bonds at 100 (100% of face
value). The entry to record the sale is:
SO 2 Prepare the entries for the issuance of bonds and interest expense.
Jan. 1 Cash 100,000
Bonds payable 100,000
Issuing Bonds at Face Value
Accounting for Bond Issues
15-17
Illustration: On January 1, 2012, Candlestick Corporation
issues $100,000, five-year, 10% bonds at 100 (100% of face
value). Assume that interest is payable semiannually on
January 1 and July 1. Prepare the entry to record the payment
of interest on July 1, 2012, assume no previous accrual.
SO 2 Prepare the entries for the issuance of bonds and interest expense.
July 1 Interest expense 5,000
Cash 5,000
Issuing Bonds at Face Value
15-18
Illustration: On January 1, 2012, Candlestick Corporation
issues $100,000, five-year, 10% bonds at 100 (100% of face
value). Assume that interest is payable semiannually on
January 1 and July 1. Prepare the entry to record the accrual
of interest on December 31, 2012, assume no previous
accrual.
SO 2 Prepare the entries for the issuance of bonds and interest expense.
Dec. 31 Interest expense 5,000
Interest payable 5,000
Issuing Bonds at Face Value
15-19 SO 2 Prepare the entries for the issuance of bonds and interest expense.
Illustration: On January 1, 2012, Candlestick, Inc. sells
$100,000, five-year, 10% bonds for $92,639 (92.639% of face
value). Interest is payable on July 1 and January 1. The entry
to record the issuance is:
Jan. 1 Cash 92,639
Discount on bonds payable 7,361
Bond payable 100,000
Accounting for Bond Issues
Issuing Bonds at a Discount
15-20
Sale of bonds below face value causes the total cost of borrowing
to be more than the bond interest paid.
The reason: Borrower is required to pay the bond discount at the
maturity date. Thus, the bond discount is considered to be a
increase in the cost of borrowing.
Statement Presentation
SO 2 Prepare the entries for the issuance of bonds and interest expense.
Illustration 15-5
Issuing Bonds at a Discount
Carrying value or book value
15-21 SO 2 Prepare the entries for the issuance of bonds and interest expense.
Total Cost of Borrowing
Illustration 15-6
Illustration 15-7
Issuing Bonds at a Discount
15-22
Discount on Bonds Payable:
a. has a credit balance.
b. is a contra account.
c. is added to bonds payable on the balance sheet.
d. increases over the term of the bonds.
SO 2 Prepare the entries for the issuance of bonds and interest expense.
Issuing Bonds at a Discount
Question
15-23 SO 2 Prepare the entries for the issuance of bonds and interest expense.
Jan. 1 Cash 108,111
Bonds payable 100,000
Premium on bond payable 8,111
Illustration: On January 1, 2012, Candlestick, Inc. sells
$100,000, five-year, 10% bonds for $108,111 (108.111% of
face value). Interest is payable on July 1 and January 1. The
entry to record the issuance is:
Accounting for Bond Issues
Issuing Bonds at a Premium
15-24
Statement Presentation
SO 2 Prepare the entries for the issuance of bonds and interest expense.
Sale of bonds above face value causes the total cost of borrowing
to be less than the bond interest paid.
The reason: The borrower is not required to pay the bond premium at
the maturity date of the bonds. Thus, the bond premium is
considered to be a reduction in the cost of borrowing.
Illustration 15-8
Issuing Bonds at a Premium
15-25 SO 2 Prepare the entries for the issuance of bonds and interest expense.
Total Cost of Borrowing
Illustration 15-9
Illustration 15-10
Issuing Bonds at a Premium
15-26 SO 3 Describe the entries when bonds are redeemed or converted.
Assuming that the company pays and records separately the
interest for the last interest period, Candlestick records the
redemption of its bonds at maturity as follows:
Bond payable 100,000
Cash 100,000
Accounting for Bond Retirements
Redeeming Bonds at Maturity
15-27
When bonds are retired before maturity, it is necessary to:
1. eliminate carrying value of bonds at redemption date;
2. record cash paid; and
3. recognize gain or loss on redemption.
The carrying value of the bonds is the face value of the bonds less unamortized bond discount or plus unamortized bond premium at the redemption date.
SO 3 Describe the entries when bonds are redeemed or converted.
Accounting for Bond Retirements
Redeeming Bonds before Maturity
15-28 SO 3 Describe the entries when bonds are redeemed or converted.
When bonds are redeemed before maturity, the gain or
loss on redemption is the difference between the cash
paid and the:
a. carrying value of the bonds.
b. face value of the bonds.
c. original selling price of the bonds.
d. maturity value of the bonds.
Accounting for Bond Retirements
Question
15-29
Illustration: Assume Candlestick, Inc. has sold its bonds at a
premium. At the end of the eighth period, Candlestick retires
these bonds at 103 after paying the semiannual interest. The
carrying value of the bonds at the redemption date is $101,623.
Candlestick makes the following entry to record the
redemption at the end of the eighth interest period (January 1,
2016):Bonds payable 100,000
Premium on bonds payable 1,623
Loss on bond redemption 1,377
Cash 103,000
SO 3 Describe the entries when bonds are redeemed or converted.
Accounting for Bond Retirements
15-30
Until conversion, the bondholder receives interest on the
bond.
For the issuer, the bonds sell at a higher price and pay a
lower rate of interest than comparable debt securities without
the conversion option.
Upon conversion, the company transfers the carrying value of
the bonds to paid-in capital accounts. No gain or loss is
recognized.
SO 3 Describe the entries when bonds are redeemed or converted.
Accounting for Bond Retirements
Converting Bonds into Common Stock
15-31
Illustration: On July 1 Saunders Associates converts
$100,000 bonds sold at face value into 2,000 shares of $10 par
value common stock. Both the bonds and the common stock
have a market value of $130,000. Saunders makes the
following entry to record the conversion:
Bonds payable 100,000
Common stock (2,000 x $10) 20,000
Paid-in capital in excess of par value 80,000
SO 3 Describe the entries when bonds are redeemed or converted.
Accounting for Bond Retirements
15-32
When bonds are converted into common stock:
a. a gain or loss is recognized.
b. the carrying value of the bonds is transferred to
paid-in capital accounts.
c. the market price of the stock is considered in the
entry.
d. the market price of the bonds is transferred to
paid-in capital.
Question
SO 3 Describe the entries when bonds are redeemed or converted.
Accounting for Bond Retirements
15-33
May be secured by a mortgage that pledges title to specific
assets as security for a loan.
Typically, terms require borrower to make installment payments
over the term of the loan. Each payment consists of
interest on the unpaid balance of the loan and
a reduction of loan principal.
Companies initially record mortgage notes payable at face value.
SO 4 Describe the accounting for long-term notes payable.
Accounting for Other Long-Term Liabilities
Long-Term Notes Payable
15-34
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-
year mortgage note on December 31, 2012. The terms provide for
semiannual installment payments of $33,231 (not including real
estate taxes and insurance). The installment payment schedule
for the first two years is as follows.
SO 4 Describe the accounting for long-term notes payable.
Illustration 15-11
Accounting for Other Long-Term Liabilities
15-35 SO 4 Describe the accounting for long-term notes payable.
Dec. 31 Cash 500,000
Mortgage payable 500,000
Jun. 30 Interest expense 30,000
Mortgage payable 3,231
Cash 33,231
Accounting for Other Long-Term Liabilities
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-
year mortgage note on December 31, 2012. The terms provide for
semiannual installment payments of $33,231 (not including real
estate taxes and insurance). The installment payment schedule
for the first two years is as follows.
15-36
Each payment on a mortgage note payable consists of:
a. interest on the original balance of the loan.
b. reduction of loan principal only.
c. interest on the original balance of the loan and
reduction of loan principal.
d. interest on the unpaid balance of the loan and
reduction of loan principal.
SO 4 Describe the accounting for long-term notes payable.
Accounting for Other Long-Term Liabilities
Question
15-38
A lease is a contractual arrangement between a lessor (owner
of the property) and a lessee (renter of the property).
SO 5 Contrast the accounting for operating and capital leases.
Illustration 15-12
Accounting for Other Long-Term Liabilities
Lease Liabilities
15-39
Operating LeaseOperating Lease Capital LeaseCapital Lease
Journal Entry:
Rent expense xxx
Cash xxx
Journal Entry:
Leased equipment xxx
Lease liability xxx
The issue of how to report leases is the case of substance
versus form. Although technically legal title may not pass, the
benefits from the use of the property do.
A lease that transfers substantially all of the benefits and
risks of property ownership should be capitalized (only
noncancellable leases may be capitalized).
SO 5 Contrast the accounting for operating and capital leases.
Accounting for Other Long-Term Liabilities
15-40
To capitalize a lease, one or more of four criteria must be
met:
Transfers ownership to the lessee.
Contains a bargain purchase option.
Lease term is equal to or greater than 75 percent of the
estimated economic life of the leased property.
The present value of the minimum lease payments
(excluding executory costs) equals or exceeds 90
percent of the fair value of the leased property.
SO 5 Contrast the accounting for operating and capital leases.
Accounting for Other Long-Term Liabilities
15-41
Illustration: Gonzalez Company decides to lease new
equipment. The lease period is four years; the economic life of
the leased equipment is estimated to be five years. The
present value of the lease payments is $190,000, which is
equal to the fair market value of the equipment. There is no
transfer of ownership during the lease term, nor is there any
bargain purchase option.
Instructions:
(a) What type of lease is this? Explain.
(b) Prepare the journal entry to record the lease.
SO 5 Contrast the accounting for operating and capital leases.
Accounting for Other Long-Term Liabilities
15-42
Illustration: (a) What type of lease is this? Explain.
Capitalization Criteria:
1. Transfer of ownership
2. Bargain purchase option
3. Lease term => 75% of economic life of leased property
4. Present value of minimum lease payments => 90% of FMV of property
NONO
NONO
Lease term
4 yrs.Economic life
5 yrs.
YES
80%
YES - PV and FMV are the same.
Capital Lease?
SO 5 Contrast the accounting for operating and capital leases.
Accounting for Other Long-Term Liabilities
15-43
Illustration: (b) Prepare the journal entry to record the lease.
SO 5 Contrast the accounting for operating and capital leases.
The portion of the lease liability expected to be paid in the next
year is a current liability.
The remainder is classified as a long-term liability.
Leased asset - equipment 190,000
Lease liability 190,000
Accounting for Other Long-Term Liabilities
15-44
The lessee must record a lease as an asset if the lease:
a. transfers ownership of the property to the lessor.
b. contains any purchase option.
c. term is 75% or more of the useful life of the leased
property.
d. payments equal or exceed 90% of the fair market
value of the leased property.
SO 5 Contrast the accounting for operating and capital leases.
Accounting for Other Long-Term Liabilities
Question
15-45SO 6 Identify the methods for the presentation
and analysis of long-term liabilities.
Illustration 15-13
Statement Presentation and Analysis
Presentation
15-46
Two ratios that provide information about debt-paying
ability and long-run solvency are:
Debt to Total Assets Ratio
Times Interest Earned Ratio
SO 6 Identify the methods for the presentation and analysis of long-term liabilities.
Statement Presentation and Analysis
Analysis
15-47
Illustration: Kellogg had total liabilities of $8,925 million, total
assets of $11,200 million, interest expense of $295 million, income
taxes of $476 million, and net income of $1,208 million.
The higher the percentage of debt to total assets, the greater the
risk that the company may be unable to meet its maturing obligations.
SO 6
Statement Presentation and Analysis
Analysis
15-48
Illustration: Kellogg had total liabilities of $8,925 million, total
assets of $11,200 million, interest expense of $295 million, income
taxes of $476 million, and net income of $1,208 million.
Times interest earned indicates the company’s ability to meet
interest payments as they come due.
SO 6
Statement Presentation and Analysis
Analysis
15-50
Illustration: Assume that you are willing to invest a sum of money
that will yield $1,000 at the end of one year, and you can earn 10%
on your money. What is the $1,000 worth today?
To compute the answer,
1. divide the future amount by 1 plus the interest rate
($1,000/1.10 = $909.09 OR
2. use a Present Value of 1 table. ($1,000 X .90909) = $909.09
(10% per period, one period from now).
SO 7 Compute the market price of a bond.
APPENDIX15APresent Value
Concepts Related to Bond Pricing
Present Value of Face Value
15-51
To compute the answer,
1. divide the future amount by 1 plus the interest rate
($1,000/1.10 = $909.09.
Illustration 15A-1
SO 7 Compute the market price of a bond.
Present Value of Face Value
15-52 SO 7 Compute the market price of a bond.
Present Value of Face Value
To compute the answer,
2. use a Present Value of 1 table. ($1,000 X .90909) =
$909.09 (10% per period, one period from now).
15-53
The future amount ($1,000), the interest rate (10%), and the
number of periods (1) are known
SO 7 Compute the market price of a bond.
Illustration 15A-2
Present Value of Face Value
15-54
If you are to receive the single future amount of $1,000 in
two years, discounted at 10%, its present value is $826.45
[($1,000 1.10) 1.10].
SO 7 Compute the market price of a bond.
Illustration 15A-3
Present Value of Face Value
15-55
To compute the answer using a Present Value of 1 table.
($1,000 X .82645) = $826.45 (10% per period, two periods
from now).
SO 7 Compute the market price of a bond.
Present Value of Face Value
15-56
In addition to receiving the face value of a bond at maturity,
an investor also receives periodic interest payments
(annuities) over the life of the bonds.
To compute the present value of an annuity, we need to
know:
1) interest rate,
2) number of interest periods, and
3) amount of the periodic receipts or payments.
SO 7 Compute the market price of a bond.
Present Value of Interest Payments (Annuities)
15-57
Assume that you will receive $1,000 cash annually for three years and the interest rate is 10%.
SO 7 Compute the market price of a bond.
Illustration 15A-5
Present Value of Interest Payments (Annuities)
15-58 SO 7 Compute the market price of a bond.
Illustration 15A-6
Present Value of Interest Payments (Annuities)
Assume that you will receive $1,000 cash annually for three years and the interest rate is 10%.
15-59 SO 7 Compute the market price of a bond.
$1,000 annual payment x 2.48685 = $2,486.85
Present Value of Interest Payments (Annuities)
Assume that you will receive $1,000 cash annually for three years and the interest rate is 10%.
15-60
Selling price of a bond is equal to the sum of:
Present value of the face value of the bond discounted
at the investor’s required rate of return
PLUS
Present value of the periodic interest payments
discounted at the investor’s required rate of return
SO 7 Compute the market price of a bond.
Computing the Present Value of a Bond
15-61
Assume a bond issue of 10%, five-year bonds with a face value
of $100,000 with interest payable semiannually on January 1
and July 1.Illustration 15A-8
SO 7 Compute the market price of a bond.
Computing the Present Value of a Bond
15-62
Illustration 15A-9
SO 7 Compute the market price of a bond.
Computing the Present Value of a Bond
Assume a bond issue of 10%, five-year bonds with a face value
of $100,000 with interest payable semiannually on January 1
and July 1.
15-63
Illustration 15A-10
SO 7 Compute the market price of a bond.
Computing the Present Value of a Bond
Assume a bond issue of 10%, five-year bonds with a face value
of $100,000 with interest payable semiannually on January 1
and July 1.
15-64
Illustration 15A-11
SO 7 Compute the market price of a bond.
Computing the Present Value of a Bond
Assume a bond issue of 10%, five-year bonds with a face value
of $100,000 with interest payable semiannually on January 1
and July 1.
15-65
Under the effective-interest method, the amortization of
bond discount or bond premium results in period interest
expense equal to a constant percentage of the carrying
value of the bonds.
Required steps:
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
1. Compute the bond interest expense.
2. Compute the bond interest paid or accrued.
3. Compute the amortization amount.
APPENDIX15BEffective-Interest Method of Bond Amortization
15-66
Illustration: Candlestick, Inc. issues $100,000 of 10%, five-year
bonds on January 1, 2010, for $92,639, with interest payable each
July 1 and January 1. This results in a discount of $7,361.
Illustration 15B-2
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
Effective-Interest Method of Bond Amortization
Amortizing Bond Discount
15-67
Illustration: Candlestick, Inc. issues $100,000 of 10%, five-year
bonds on January 1, 2012, for $92,639, with interest payable each
July 1 and January 1. This results in a discount of $7,361.
Journal entry on July 1, 2012, to record the interest payment and
amortization of discount is as follows:
Interest Expense 5,558
Cash 5,000
Discount on Bonds Payable 558
July 1
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
Amortizing Bond Discount
15-68
Illustration 15B-4
Illustration: Candlestick, Inc. issues $100,000 of 10%, five-year
bonds on January 1, 2012, for $108,111, with interest payable
each July 1 and January 1. This results in a premium of $8,111.
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
Amortizing Bond Premium
15-69
Interest Expense 4,324
Cash 5,000
Premium on Bonds Payable 676
July 1
Illustration: Candlestick, Inc. issues $100,000 of 10%, five-year
bonds on January 1, 2012, for $108,111, with interest payable
each July 1 and January 1. This results in a premium of $8,111.
Journal entry on July 1, 2012, to record the interest payment and
amortization of premium is as follows:
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
Amortizing Bond Premium
15-70
Illustration: Candlestick, Inc., sold $100,000, five-year, 10%
bonds on January 1, 2012, for $92,639 (discount of $7,361).
Interest is payable on July 1 and January 1.
Illustration 15C-2
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
APPENDIX15CStraight-Line Amortization
Amortizing Bond Discount
15-71
Illustration: Candlestick, Inc., sold $100,000, five-year, 10%
bonds on January 1, 2012, for $92,639 (discount of $7,361).
Interest is payable on July 1 and January 1. The bond discount
amortization for each interest period is $736 ($7,361/10).
Journal entry on July 1, 2012, to record the interest payment and
amortization of discount is as follows:
Interest Expense 5,736
Cash 5,000
Discount on Bonds Payable 736
July 1
SO 8 Apply the effective-interest method of amortizing bond discount and bond premium.
Amortizing Bond Discount
15-72
As indicated in Chapter 11, in general GAAP and IFRS define liabilities similarly.
IFRS requires that companies classify liabilities as current or non-current on the face of the statement of financial position (balance sheet), except in industries where a presentation based on liquidity would be considered to provide more useful information (such as financial institutions). When current liabilities (also called short-term liabilities) are presented, they are generally presented in order of liquidity.
Under IFRS, liabilities are classified as current if they are expected to be paid within 12 months.
Key Points
15-73
Similar to GAAP, items are normally reported in order of liquidity. Companies sometimes show liabilities before assets. Also, they will sometimes show non-current (long-term) liabilities before current liabilities.
Under both GAAP and IFRS, preferred stock that is required to be redeemed at a specific point in time in the future must be reported as debt, rather than being presented as either equity or in a “mezzanine” area between debt and equity.
The basic calculation for bond valuation is the same under GAAP and IFRS.
Key Points
15-74
IFRS requires use of the effective-interest method for amortization of bond discounts and premiums. GAAP allows use of the straight-line method where the difference is not material. Under IFRS, companies do not use a premium or discount account but instead show the bond at its net amount. For example, if a $100,000 bond was issued at 97, under IFRS a company would record:
Cash 97,000
Bonds payable 97,000
Key Points
15-75
The accounting for convertible bonds differs across IFRS and GAAP, Unlike GAAP, IFRS splits the proceeds from the convertible bond between an equity component and a debt component. The equity conversion rights are reported in equity.
Both Boards share the same objective of recording leases by lessess and lessors according to their economic substance—that is, according to the definitions of assets and liabilities. However, GAAP for leases is much more “rules-based” with specific bright-line criteria (such as the “90% of fair value” test) to determine if a lease arrangement transfers the risks and rewards of ownership; IFRS is more conceptual in its provisions. Rather than a 90% cut-off, it asks whether the agreement transfers substantially all of the risks and rewards associated with ownership.
Key Points
15-76
The FASB and IASB are currently involved in two projects, each of which has implications for the accounting for liabilities. One project is investigating approaches to differentiate between debt and equity instruments. The other project, the elements phase of the conceptual framework project, will evaluate the definitions of the fundamental building blocks of accounting. The results of these projects could change the classification of many debt and equity securities.
In addition to these projects, the FASB and IASB have also identified leasing as one of the most problematic areas of accounting. A joint project will initially focus primarily on lessee accounting.
Looking to the Future
15-77
The accounting for bonds payable is:
a) essentially the same under IFRS and GAAP.
b) differs in that GAAP requires use of the straight-line method
for amortization of bond premium and discount.
c) the same except that market prices may be different because
the present value calculations are different between IFRS and
GAAP.
d) not covered by IFRS.
IFRS Self-Test Questions
15-78
Under IFRS, if preference shares (preferred stock) have a
requirement to be redeemed at a specific point in time in the future,
they are treated:
a) as a type of asset account.
b) as ordinary shares (common stock).
c) in the same fashion as other types of preference shares.
d) as a liability
IFRS Self-Test Questions
15-79
The leasing standards employed by IFRS:
a) rely more heavily on interpretation of the conceptual
meaning of assets and liabilities than GAAP.
b) are more “rules based” than those of GAAP.
c) employ the same “bright-line test” as GAAP.
d) are identical to those of GAAP.
IFRS Self-Test Questions
15-80
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