... The first issue is determining whether the host contract is a debt or equity security. The second issue is determining whether the Company needs to separate the conversion option and/or the redemption option in the Series B Preferred Stock from the host contract and account for them as separate derivative instruments. Another minor accounting issue is if the company was a private company and its common stock was not publicly traded, would it matter how the conversion and the redemption options were accounted for. i) Is the host contract more akin to a debt or equity instrument for the purpose of analyzing the embedded features in the Series B Preferred Stock? The host contract has similarities to both debt and equity. As stated in 815-15-25 17A, in order to determine the nature of the host contract, the characteristics of the entire financial instrument need to be taken into account. The individual characteristics need to be assigned weights to help determine whether the entire financial...
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...FDA approval for the HVS by the 5th anniversary of the date of purchase of the stock, it will redeem the shares at par value. Issues 1) Does the host contract contain an embedded derivative that must be accounted for separately, and how does this affect the classification of the contract as a liability or equity? 2) Are accounting changes necessary due to the failure of Hearts to acquire FDA approval of its product? 3) How would the accounting guidelines change, if at all, if Hearts were an SEC registrant? Analysis ASC 815 and ASC 480 contain a myriad of rules that could apply to a hybrid instrument. The issuance of the preferred stock contains within it the requirement for Hearts to buy back its stock at par value upon the condition that the FDA has not approved its HVS by the 5th anniversary of the stock purchase. This could constitute an embedded derivative, as defined by ASC 815-15-20 (future cash flows are affected). ASC 815-15-25-1 requires an embedded derivative to be separated...
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...MEMO To: Borg Re: Preferred stock classification Facts Borg (the Company) is an early-stage research and development medical device company. Borg has no current products in the marketplace but is in the final stages of going to market with the Heart Valve System. All preliminary trials have been approved by the FDA, and the Company is in the final trial; once the final trial is complete, the Company will present the product to the FDA for final approval. If approved by the FDA, the Heart Valve System will revolutionize the way medical professionals repair heart valve defects. Bionic Body (“Bionic”), a SEC registrant, is a biological medical device company that focuses on the development of implantable biological devices, surgical adhesives, and biomaterials. Bionic could benefit from the approval of the Heart Valve System since it has a supplementary device that could be used in tandem with the Heart Valve System. As part of a financing strategy to support its operations, Borg sold Bionic $3.5 million of Series A Preferred Shares (the “Shares”) of the Company with a par value of $1 per Share. The transaction was completed on November 30, 2011. As part of the Series A Preferred Stock purchase agreement, Bionic has the following rights: * Board Rights — as the holder of the preferred stock, Bionic is entitled to appoint one member to the Company’s board of directors (the “Board”). In addition, Bionic has the right to appoint an observer to receive all information provided...
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...CASE: Reporting Comprehensive Income: IFRS vs. US GAAP a) Messrs. Cope and Foster dissent from this Statement because it permits an enterprise to display the items of other comprehensive income identified in this Statement with less prominence and to characterize them differently from other items of comprehensive income that are currently included in net income. Messrs. Cope and Foster believe that a primary objective in undertaking a project on reporting comprehensive income was to significantly enhance the visibility of items of other comprehensive income. They also believe that the Board inappropriately failed to respond to the clear and unequivocal call from users of financial statements for the transparent presentation of all items of comprehensive income, whose request is acknowledged in paragraphs 40 and 41 of this Statement. They also note that, as evidenced by the basis for conclusions in the Exposure Draft, the Board held views similar to theirs when it issued that document. We agree with Messrs. Cope and Foster’s concerns. If the companies choose to report the items of other comprehensive income in the Statement of Changes in Equity, the visibility of these items will be decreased because there are many other important item in this statement, and the users may not focus on the important items of other comprehensive income, and at the same time, net income is reported in the Income Statement, which will make the financial statement users focus more on net income...
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...Right Additional Protective Rights Right of First Refusal and Co-Sale Rights After Year 4, Hearts is still in the process of filing for FDA approval. The clinical testing and administrative process for filing for the FDA approval have taken much longer than initially anticipated. In addition, the trial results have been worrisome because of certain post-surgery issues that have been experienced by patients who received the Heart Valve System. It is certain the product will not receive FDA approval by end of Year 5. Hearts had planned to have an initial public offering (IPO) in the future. --- Whether the preferred stocks should be classified (treated) as a (debt/equity) is an accounting issue because of the guidance of the ASC Codification 815-15-25 (Derivatives and Hedging, Embedded Derivatives, Recognition) paragraph 17 shown below; 25-17 Because the changes in fair value of an equity interest and interest rates on a debt instrument are not clearly and closely related, the terms of convertible preferred stock (other than the conversion option) shall be analyzed to determine whether the preferred stock (and thus the potential host contract) is more akin to an equity instrument or a debt instrument. A typical cumulative fixed-rate...
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...Comparison between U.S. GAAP and International Financial Reporting Standards May 2013 © 2013 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd Comparison between U.S. GAAP and International Financial Reporting Standards 2 Contents 1. Introduction .................................................................................................................................................. 6 International standards and the IASB ............................................................................................................ 6 Financial accounting and reporting in the United States ................................................................................ 6 IFRS and U.S. GAAP comparison ................................................................................................................. 6 Overall financial statement presentation ................................................................................................... 8 General .......................................................................................................................................................... 8 Statement of financial position / balance sheet .............................................................................................. 9 Statement of comprehensive income / income statement ........................................................................... 12 Statement of changes in equity...
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...RESEARCH: Accounting Standard Codification (ASC) 1. FASB had four primary goals in developing the codification. List these four goals: 1. Simplify user access to all authoritative U.S. GAAP by putting them all in one place with codification 2. Assist FASB with the research and international convergence efforts required during the standard-setting process 3. Become the authoritative source of literature for the completed extensible business reporting language (XBRL) taxonomy 4. Clarify that only guidance contained in the Codification is authoritative and other sources are not authoritative 2. List three SEC authoritative guidance, standard and interpretations included in the codification: 1. Regulation S-X (SX) 2. Financial Reporting Releases (FRR)/Accounting Series Releases (ASR) 3. Interpretive Releases (IR) 3. The accounting literature replaced by the FASB Codification includes (list five): 1. Accounting Research Bulletins (ARB) 2. Accounting Principles Board Opinions (APB) 3. AICPA Accounting Interpretations (AIN) 4. Statements of Financial Accounting Standards (SFAS) 5. FASB Interpretations (FIN) 4. For the following five FASB standards (FAS), provide the corresponding ASC Topic#: FAS 141(R): ASC 805 FAS 52: ASC 830 FAS 13: ASC 840 FAS 133: ASC 815 FAS 115: ASC 320 5. Explain the following ASC references: FASB ASC 310-10-05-2: 310 Receivables 10 Overall ...
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... Hossain Fall Quarter 2012 CALIFORNIA STATE UNIVERSITY, LOS ANGELES ACCT 495: Bordwell RESEARCH: Accounting Standard Codification (ASC) 1. FASB had four primary goals in developing the codification. List these four goals: 1) Simplify user access by codifying all authoritative U.S. GAAP 2) Ensure that the codification content accurately represented authoritative US GAAP 3) Mitigate the risk of noncompliance with standards through improved usability of the literature 4) Provide codification research system that is accurate with real-time updates as new standards are released 2. List three SEC authoritative guidance, standard and interpretations included in the codification: 1) Regulation S-X (SX) 2) Financial Reporting Releases (FRR)/Accounting Series Releases (ASR) 3) Interpretive Releases (IR) 3. The accounting literature replaced by the FASB Codification includes (list five): 1) Accounting Research Bulletins (ARB) 2) Accounting Principles Board Opinions (APB) 3) AICPA Accounting Interpretations (AIN) 4) Statements of Financial Accounting Standards (SFAS) 5) FASB Interpretations (FIN) 4. For the following five FASB standards (FAS), provide the corresponding ASC Topic#: FAS 141(R): FAS 52: FAS 13: FAS 133: FAS 115: ! ASC 805 ASC 830 ASC 840 ASC 815 ASC 320 1 ACCT 495: Bordwell 5. Explain the following ASC references: FASB ASC 310-10-05-2: The Overall Subtopic establishes general guidance for receivables. The guidance is presented in the following two Subsections:...
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...acquire 80% of the outstanding common stock of Baked Beans Corp, the amount of consideration Allfoods Corp. transferred is: (in millions) (1) Cash 40 (2) Common Stock 70 (3) Contingient Consideration 20 (4) ------------------------------------------------- Cost of precobination option exchange 5 Total 135 (2) Common stock (C/S) is 2 million shares at $35/share. (3) Contingent consideration is recorded at fair value at acquisition-date. (ASC 805-30-Currently Viewing:805 Business Combinations25-5) In this case, the contingent consideration is classified as equity since it settled in shares. (ASC 815-40-25-4) The contingient consideration goes into additional paid in capital account (APIC) on the Allfoods’ balance sheet. (4) Exchange of share options in conjunction with a business combination is modification of share-based payment awards. The portion attributable to precombination service is part of the consideration transferred. (ASC 805-30-30) The underlying shares for stock options are not liabilities and there is no...
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...edition of our Financial Reporting Developments publication on accounting for transfers and servicing of financial assets. This publication has been updated for further clarification and enhancements to our interpretative guidance. Applying ASC 860 in practice continues to be challenging. ASC 860’s scope is wide and applies to more than just securitizations. Moreover, ASC 860 relies in part on legal interpretations to determine the accounting for the transfer. Additionally, a transferor’s continuing involvement — which can vary significantly from transaction to transaction — will also affect the accounting analysis, requiring a complete understanding of both the business purpose and the form of the transaction. The authoritative literature on accounting for transfers of financial assets continues to change. The FASB is currently finalizing a project that would amend the accounting for repurchase-to-maturity transactions and repurchase financings and require new disclosures for certain transfers accounted for as sales and secured borrowings. In addition, the AICPA is updating its guidance on the use of legal interpretations as evidential matter to support management’s assertion that a transfer of financial assets has met the isolation criterion in ASC 860. This publication includes excerpts from and references to the FASB’s Accounting Standards Codification, interpretive guidance and examples. Practice continues to develop and additional authoritative guidance in this area could be issued...
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...Chapter 11: multinational accounting: foreign currency transactions and financial instruments L.O.11-1: Understand how to make calculations using foreign currency exchange rates The accounting issues * Foreign currency transactions of a U.S. company include sales, purchases, and other transactions giving rise to a transfer of foreign currency or the recording of receivables or payables that are denominated in a foreign currency. * Translation is the process of restating foreign currency transactions to their U.S. dollar equivalent values. * Many U.S. corporations have multinational operations. * The foreign subsidiaries prepare their financial statements in their home currencies * The foreign currency amounts in these financial statements have to be translated into their U.S. dollar equivalents before they can be consolidated with the U.S. parent’s financial statements that uses U.S. dollar as its reporting currency unit Foreign currency exchange rates * Foreign currency exchange rates between currencies are established daily by foreign exchange brokers who serve as agents for individuals or countries wishing to deal in foreign currencies * Some countries maintain an official fixed rate of currency exchange and have established fixed exchange rates for dividends remitted outside the country. * The determination of exchange rates * Exchange rates change because of a number of economic factors affecting the supply of and demand for a nation’s...
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...any person who relies on this publication. As used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. March 2010 Contents Acknowledgments Introduction Section 1 — Overview, Background, and Scope 1.01 1.02 Determining Which Consolidation Model to Apply Consideration of Substantive Terms, Transactions, and Arrangements Substantive Terms and Arrangements Scope and Scope Exceptions Overall Scope Considerations 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 Application of the VIE Model in ASC 810-10 to Non-SPEs Qualification of a SPE as a Voting Interest Entity Application of the VIE Model in ASC 810-10 to Multitiered Legal Entity Structures Application of the VIE Model in ASC...
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...ACCT 5101 (Section 004) Homework Assignment #1 (2011-9-13-Tuesday) Jonathan Nam 1. Briefly describe the primary purposes for the development of the codification. • Simplify user access by codifying all authoritative US GAAP in one spot. • Ensure that the codified content accurately represented authoritative US GAAP as of July 1, 2009. • Create a codification research system that is up to date for the released results of standard-setting activity. • Reduce the amount of time and effort to solve an accounting research issue. • Mitigate the risk of noncompliance through improved usability of the literature. • Provide accurate information with real-time updates as Accounting Standards Updates are released. • Assist the FASB with the research and convergence efforts. 2. Briefly describe the purpose and content of the “What’s New” link. It aims to provide descriptions of recent modifications and enhancements to the FASB Accounting Standards Codification website. The existing already-issued content has been moved to the “Recently Issued” section, therefore one may expect to have only recent changes/enhancements in codification in the “What’s New” link. You will browse the recent updates of codification, which are categorized by diverse topics on the left tool bar. 3. a) Describe the hierarchy of the topical structure of the FASB’s Codification. List the main sources of GAAP that are included in the Codification...
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...Financial reporting developments A comprehensive guide Consolidated and other financial statements Revised November 2013 Noncontrolling interests, combined financial statements, parent company financial statements and consolidating financial statements To our clients and other friends This Financial reporting developments (FRD) publication is primarily designed to help you understand financial reporting issues related to the accounting for noncontrolling interests. This publication also includes interpretive guidance on consolidation procedure and on the presentation of combined, parentonly, and consolidating financial statements. The publication reflects our current understanding of the relevant guidance in these areas, based on our experience with financial statement preparers and related discussions with the FASB and SEC staffs. The accounting for noncontrolling interests is based on the economic entity concept of consolidated financial statements. Under the economic entity concept, all residual economic interest holders in an entity have an equity interest in the consolidated entity, even if the residual interest is relative to only a portion of the entity (that is, a residual interest in a subsidiary). Therefore, a noncontrolling interest is required to be displayed in the consolidated statement of financial position as a separate component of equity. Likewise, the consolidated net income or loss and comprehensive income or loss attributable to both controlling...
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...www.pwc.com Guide to Accounting for Variable Interest Entities 2012 This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication. The content of this publication is based on information available as of May 31, 2012. Accordingly, certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretive guidance that is issued. Portions of various FASB documents included in this work, copyright © by Financial Accounting Foundation 401 Merritt 7, Norwalk, CT 06856, are reproduced by permission. Dear Clients and Friends: The...
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