- You have just been assigned to provide client services to the following entities. For each, identify three resources you could consult in order to better understand the company’s business model and industry.
a. Ascension Health
b. General Motors
c. Time Warner Cable
- You are once again in the first step of the research process (understanding the facts). Now, your company is looking to repurchase some of its outstanding stock. You are about to attend a meeting between representatives of your company’s Treasury department and a bank. Identify three resources you could consult, or questions you might ask of others on your team or in the organization, to gather additional background/ precedent for this issue before you attend the meeting.
Identify at least one researchable question for each of the following issues.
- A cable network has just entered into an agreement granting it the right to show reruns of a hit TV series. In exchange for this right, the network must pay the TV show’s creators a fee each time the show airs.
- An online travel agency sells a $400 airline ticket to a customer; of this amount, the travel agency must remit $370 to the airline, and the travel agency will retain a $30 commission related to the sale of the ticket.
- A popular website primarily generates revenue through ad sales. Ad buyers must pay a specified cost per click, and this cost is based on agreed-upon terms between the website and the ad buyer. The typical term of an advertising arrangement is approximately 30 days with billing generally occurring after the delivery of the advertisement.
- Acknowledging publicly that its Pie Division is its most unprofitable business unit, Bakeries, Inc. has announced the sale of the Pie Division’s four baking facilities, along with planned layoffs of Pie Division’s employees. Bakeries, Inc. is hoping to segregate the results of the Pie Division’s operations in its financial statements.
- Stop and think. In this example, you’ll be asked to stop and think about an issue, then to search the Codification for applicable guidance.
a. Stop and think. Your company has just paid in advance for 12 months of billboard advertising. The company must now determine how to record the cost of this advertising. What does your instinct tell you to do?
b. Now, perform research within the Codification to find guidance on this issue. List two Codification subtopics that you think are most relevant to this issue and provide a one-sentence summary for each. Assume this is not a direct response advertising cost. Also, assume ASC 340-20 does not apply.
Chapter 4 – Creating Effective Documentation (#1,3,7 in your text)
- For each of the following pieces of information, state whether it should be included in, or excluded from, the Facts section of an issues memo, assuming that the objective of the issues memo is to evaluate whether as new issue of preferred stock should be classified as a liability or as equity. Briefly explain your reasoning.
a. The fact that the issuer is a public company.
b. The key terms of the preferred stock, including its par value and any conversion or redemption features.
c. The anticipated size of the issuance, in dollars.
d. The date on which the issuance is expected to occur.
e. Background on the company and its primary sources of revenue.
f. The fact that the company entered into a similar transaction several years ago.
g. Detail about the counter-party (investor) who is expected to purchase a large share of the preferred stock issuance.
- Draw a picture illustrating the following fact pattern:
Company A is exchanging its patent for a building in Michigan, plus $750,000 cash, from Company B. Company B has taken out a loan for $750,000 from Sub Bank in anticipation of the exchange. Sub Bank is a wholly owned subsidiary of Parent Bank.
- Savvy Sisters, a high-end furniture production company, has purchased a new plant and has asked you: Over what period should our new plant be depreciated? The plant’s estimated useful life is 40 years. Using a guidance sandwich, respond to this question. That is, introduce the issue, quote relevant guidance, then summarize how the guidance applies to the issue.
