Case 5-1

S. A. Harrington Company

S. A. Harrington Company is a U.S.-based company that prepares its consoli- dated financial statements in accordance with U.S. GAAP. The company reported income in 2011 of $5,000,000 and stockholders' equity at December 31, 2011, of $40,000,000.

The CFO of S. A. Harrington has learned that the U.S. Securities and Exchange Commission is considering requiring U.S. companies to use IFRS in preparing consolidated financial statements. The company wishes to determine the impact that a switch to IFRS would have on its financial statements and has engaged you to prepare a reconciliation of income and stockholders equity from U.S. GAAP to IFRS.

The CFO provides the following information with respect to of these accounting differences..

Bonds Payable

On January 1, 2010, the company issued $10,000,000 of 5 percent bonds at par value that mature in five years on December 31, 2014. Costs incurred in issuing the bonds were $500,000. Interest is paid on the bonds annually.

Required

Prepare a reconciliation schedule to reconcile 2011 net income and December 31, 2011 stockholders' equity from a U.S. GAAP basis to IFRS. Ignore income taxes. Prepare a note to explain each adjustment made in the reconciliation schedule.