On January 1, 2013, Garner issued 10-year, $200,000 face value,6% bonds at par. Each $1,000 bond is convertible into 30 shares ofGarner $2 par value common stock. The company has had 10,000 sharesof common stock (and no preferred stock) outstanding throughout itslife. None of the bonds have been converted as of the end of 2014.(Ignore all tax effects.)
~~PLEASE ANSWER THE 2 QUESTIONS BELOW COMPLETELY, THANKYOU~~
1 - Show how Garner will report income and EPSfor 2014 and 2013. Briefly discuss the importance of GAAP for EPSto analysts evaluating companies based on price-earnings ratios.Consider comparisons for a company over time, as well ascomparisons between companies at a point in time.
2 - In order to converge GAAP and IFRS, theFASB is considering whether the equity element of a convertiblebond should be reported as equity. Describe how the journal entryyou made in part (a) above would differ under IFRS. In terms of theaccounting principles discussed in Chapter 2, what does IFRS forconvertible debt accomplish that GAAP potentially sacrifices? Whatdoes GAAP for convertible debt accomplish that IFRS potentiallysacrifices?