Which of the following is correct regarding convertible bonds at issuance?I. Under US GAAP, no value is assigned to the conversion feature.II. Under the IFRS, both a liability and an equity component should be recognized when the bonds are issued.

CPA FAR Equity covers stockholders' equity (common/preferred stock, retained earnings, treasury stock) and Earnings Per Share (EPS), focusing on capital structure, dividend, and share transactions.  Key topics include calculating basic EPS [(Net Income−Preferred Dividends)/Weighted Average Shares Outstanding], and diluted EPS, accounting for treasury stock (cost/par method), and stock dividends/splits.  Stockholders' Equity Components Common Stock: Reported at par value. Preferred Stock: Cumulative dividends are deducted from net income in EPS, regardless of declaration. Non-cumulative... Show more

CPA FAR Equity covers stockholders' equity (common/preferred stock, retained earnings, treasury stock) and Earnings Per Share (EPS), focusing on capital structure, dividend, and share transactions. 

Key topics include calculating basic EPS [(Net Income−Preferred Dividends)/Weighted Average Shares Outstanding], and diluted EPS, accounting for treasury stock (cost/par method), and stock dividends/splits. 

Stockholders' Equity Components
Common Stock: Reported at par value.
Preferred Stock: Cumulative dividends are deducted from net income in EPS, regardless of declaration. Non-cumulative dividends are only deducted if declared.
Treasury Stock: Contra-equity account, typically recorded at cost, reducing total equity.
Retained Earnings: Increased by net income, decreased by losses and dividends.
Stock Dividends/Splits: Treated retroactively; No journal entry for stock splits, only memo notation. 

Earnings Per Share (EPS)
Basic EPS: [(Net Income−Preferred Dividends)/Weighted Average Shares Outstanding]

Weighted Average Shares: Adjusted for issuance, buybacks, and stock splits, treated "as if" they happened at the start of the period.
Diluted EPS: Required for complex structures (options, warrants, convertible bonds/stock).
Treasury Stock Method: Used for options/warrants; assumes proceeds from exercise are used to repurchase shares.
If-Converted Method: Used for convertible securities; assumes conversion at the beginning of the period, eliminating interest expense (net of tax).
Antidilutive: Securities that increase EPS are ignored. 

Key Ratios
Rate of Return on Common Stockholders' Equity: [(Net Income−Preferred Dividends)/Average Common Equity]
Debt to Equity: Total Liability / Total Shareholder Equity

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