Appendix Financial Ratios
CHAPTER 16
COMPLEX FINANCIAL INSTRUMENTS
ASSIGNMENT CLASSIFICATION TABLE
| | |Brief | | | | | |Writing Assignments |
|Topics | |Exercises | |Exercises | |Problems | | |
| | | | | | | | | |
|1. Stock options. | |16 | |15, 16, 17 | |10 | |2, 5 |
|2. Derivative instruments for speculation | |1, 3, 4 | |1, 2 | |1, 2, 3, | |6, 7, 8, 9 …show more content…
Accordingly, failure to do so would result in Silky paying an extremely high dividend to the preferred shareholders. Silky has little or no discretion to avoid paying out the cash to redeem the shares before the end of the fifth year and this likely obligation to deliver cash creates a liability. Consequently, the preferred shares should be classified as long-term debt on the statement of financial position.
Because the preferred shares are classified as long-term debt on the statement of financial position, the dividends declared and paid to preferred shareholders would be classified as interest expense on the statement of income. It might be desirable to separate the amount of dividends (reported as interest expense) paid on the preferred shares with the interest paid on other debt.
BRIEF EXERCISE 16-8
Under IFRS, the preferred shares would be recorded as a liability because the contingent settlement provision is based on an event outside the company’s control.
However, under ASPE, the preferred shares would be accounted for as a liability only when it is highly likely that the firm’s net income will drop below $500,000 in a future fiscal period. If the triggering event is unlikely, then the preferred shares would be accounted for as
COMPLEX FINANCIAL INSTRUMENTS
ASSIGNMENT CLASSIFICATION TABLE
| | |Brief | | | | | |Writing Assignments |
|Topics | |Exercises | |Exercises | |Problems | | |
| | | | | | | | | |
|1. Stock options. | |16 | |15, 16, 17 | |10 | |2, 5 |
|2. Derivative instruments for speculation | |1, 3, 4 | |1, 2 | |1, 2, 3, | |6, 7, 8, 9 …show more content…
Accordingly, failure to do so would result in Silky paying an extremely high dividend to the preferred shareholders. Silky has little or no discretion to avoid paying out the cash to redeem the shares before the end of the fifth year and this likely obligation to deliver cash creates a liability. Consequently, the preferred shares should be classified as long-term debt on the statement of financial position.
Because the preferred shares are classified as long-term debt on the statement of financial position, the dividends declared and paid to preferred shareholders would be classified as interest expense on the statement of income. It might be desirable to separate the amount of dividends (reported as interest expense) paid on the preferred shares with the interest paid on other debt.
BRIEF EXERCISE 16-8
Under IFRS, the preferred shares would be recorded as a liability because the contingent settlement provision is based on an event outside the company’s control.
However, under ASPE, the preferred shares would be accounted for as a liability only when it is highly likely that the firm’s net income will drop below $500,000 in a future fiscal period. If the triggering event is unlikely, then the preferred shares would be accounted for as