Classification and Accounting for Debt and Equity

Learning Objectives

• To discuss the key measurement issues addressed by the financial statements and explain how the current classification is used. 
• To explain the concept of contingent liability and explain how contingencies are accounted for.
• To analyze what a bond is and explain how the bond issuances are accounted for using the effective interest method.
• To analyze how the effective interest method is used to account for bond investments and describe how management’s intention determines how changes in bond market values are accounted for.
• To explain the difference between short-term and long-term (financing and operating) leases and how both kinds of leases are reflected on the financial statements of the lessee.
• To summarize the shareholders’ equity section of the balance sheet and describe the transactions leading to each line item within that section.

Course Description

The classification and accounting for debt and equity instruments can be quite complicated due in part to the complexity inherent in certain instruments, the sheer volume of transaction documents that may need to be considered in performing the accounting analysis, and the myriad of accounting guidance that may be relevant. 

In many cases, an accounting outcome can be significantly affected by the existence or absence of one sentence in the relevant documents. Consideration needs to be given to not only the appropriate balance sheet classification of instruments, such as preferred stock and warrants, which may have both debt and equity characteristics but also the subsequent measurement. 

Additionally, instruments such as debt and preferred stock oftentimes have embedded features that may need to be given separate accounting recognition. The accounting analysis is further complicated if multiple instruments are issued as part of the same transaction as that typically necessitates an allocation of proceeds to the various instruments or features.

Speaker Jamie Pratt in this CPE webinar discusses the concept of classification and its important role in the financial statements, and coverage of the company’s two primary forms of financing I.e. debt and equity. 

The following are the major topics covered in this CPE Accounting Webinar:

• Key measurement issues and the current classification
• Introduction to liabilities and contingencies        
• Accounting for bond issuances
• Bond investments
• Accounting for leases
• Shareholders’ equity

The financial statements and the footnotes of the companies featured in this CPE course include General Motors, Volkswagen (an IFRS user), Amazon, Home Depot, and Panera.

Overview

• Where to disclose

  3 mins
• Liabilities: Contingencies

  17 mins
• Provision liability entries

  39 mins
• What determines bond prices?

  59 mins
• Accounting for bond investments

  84 mins
• Accounting for capital leases

  111 mins
• Accounting for stock options

  148 mins