True/False
1. IFRS and GAAP have significant differences in the reporting of securities with characteristics of debt
and equity, such as convertible debt.
2. Under IFRS, employee share-purchase plans must be recorded as an expense in the year it was
issued by a company.
3. Under IFRS, convertible bonds are "bifurcated" —separated into the equity component (the value
of the conversion option) of the bond issue and the debt component.
4. Under both GAAP and IFRS, the calculation of basic and diluted earnings per share is identical.
5. IFRS requires that compound instruments be separated into their liability and equity components
for purposes of accounting.
Multiple Choice:
6. With regard to recognizing stock-based compensation
a. IFRS and GAAP follow the same model.
b. IFRS and GAAP standards are undergoing major reform on valuation issues.
c. it has been agreed that these standards will not be merged due to the differences in currencies.
d. the reform of GAAP standards will not be addressed until IFRS standards have been finalized.
7. Under IFRS, how are convertible debt recorded?
a. Convertible debt is separated into equity component and debt component.
b. Convertible debt is recorded under stockholders’ equity.
c. Convertible debt is recorded as long-term liability.
d. Convertible debt is added to current liability section, as it will be converted to equity.
8. Convertible bonds are separated into the equity component of the bond issue and the debt
component under
a. GAAP and IFRS.
b. Neither GAAP nor IFRS.
c. IFRS only.
d. GAAP only.
9. With regard to contracts that can be settled in either cash or shares
a. IFRS requires that share settlement must be used.
b. IFRS gives companies a choice of either cash or shares.
c. GAAP requires that share settlement must be used.
d. the FASB project proposes that the IASB adopt the GAAP approach, requiring that share settlement must
be used.
10. Under IFRS, what is recorded as compensation expense for all employee share-purchase
plans?
a. Par value of shares
b. Amount paid by employees
c. Amount of discount
d. Amount transferred to share premium
11. Which of the following differs in GAAP and IFRS?
a. Calculation of EPS
b. Model for recognizing stock-based compensation
c. Accounting for convertible debt
d. Modification of a share option
Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000 at the beginning of
2021. The bonds have a stated rate of interest of 9% and interest is payable annually. Each bond can
be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt
is 10%.
12. The fair value of the liability component using the "with-and-without" method is
a. $3,848,288
b. $2,483,600
c. $1,365,688
d. $ 151,712
Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000 at the beginning of
2021. The bonds have a stated rate of interest of 9% and interest is payable annually. Each bond can
be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt
is 10%.
13. Determine the fair value of the equity component using the "with-and-without" method is
a. $3,848,288
b. $2,483,600
c. $1,365,688
d. $ 151,712
Swing High Inc. offers its 100 employees to participate in an employee share-purchase plan. Under the terms of
plan, employees are entitled to purchase 10 shares at 10% discount. The par values of shares were $10. Overall,
60 employees accepted the offer and each employee purchased six shares. The market price on purchase date
was $100.
14. What is the compensation expense recorded by Swing High Inc.?
a. $ 3,600
b. $32,400
c. $36,000
d. $28,800
Swing High Inc. offers its 100 employees to participate in an employee share-purchase plan. Under the terms of
plan, employees are entitled to purchase 10 shares at 10% discount. The par values of shares were $10. Overall,
60 employees accepted the offer and each employee purchased six shares. The market price on purchase date
was $100.
15. Swing High Inc. will credit Share Premium―Ordinary for:
a. $32,400
b. $ 3,600
c. $36,000
