Graduation Year

Spring 2012

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

Matthew Magilke

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© 2012 Ivan Gutierrez

Abstract

Under current GAAP principles convertible debt is valued and accounted for using an outdated practice. Only one aspect of these complex financial instruments are valued at a time resulting in flawed financial statements. Although the Accounting Principles Board agreed with this sentiment, originally proclaiming that both the debt and equity aspects be valued together, significant resistance by the public forced the Board to amend its Opinion to the current standard. In this paper three ratios that measure company performance and health will be tested against the amount of convertible debt in selected companies in the hopes that a correlation will be found that shows the impact of the current accounting method.

Comments

Under current GAAP principles convertible debt is valued and accounted for using an outdated practice. Only one aspect of these complex financial instruments are valued at a time resulting in flawed financial statements. Although the Accounting Principles Board agreed with this sentiment, originally proclaiming that both the debt and equity aspects be valued together, significant resistance by the public forced the Board to amend its Opinion to the current standard. In this paper three ratios that measure company performance and health will be tested against the amount of convertible debt in selected companies in the hopes that a correlation will be found that shows the impact of the current accounting method.

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