File Memo:
Client: Narda Corporation
Date: 9/17/2014
Facts:
Narda Corporation agreed to sell all of its capital stock to Effie Corporation for three monthly payments of $200,000. After Effie made the first required payment, it ceased making other payments. The stock subscription agreement states that Effie, thus, forfeits its payments and is entitled to no other future consideration.
Issue:
How should Narda record the $200,000 forfeited payment?
Relevant Authority: Comments:
§505-10-25 -2 All of the following shall be excluded from the determination of net income or the results of operations under all circumstances:
§505-10-25 -2(a) Adjustments or charges or credits resulting from transactions in the entity's own capital stock
§220-10-20(b) The change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income comprises both of the following: All components of other comprehensive income.

Analysis:
The gain of $200,000 Narda Corporation would be excluded from net income under §505-10-25 -2 from the FASB Codification. The forfeited payment from Effie Corporation results in a credit to Narda under §505-10-25 -2(a).
For the purposes of accounting treatment of the $200,000, it would be treated as comprehensive income under §220-10-20(b) because the forfeited payment represents a change in Narda Corp’s equity.
Conclusion:
The forfeited payment of $200,000 from Effie Corporation should be excluded from net income, and treated as comprehensive income from accounting treatment. Narda Corp should record the comprehensive income, resulting from change in equity, on a separate