Homework Help is Here – Start Your Trial Now!
Business
Accounting
1. Should the $10 million paid to employees and the $10 million received from WTD be presented gross or net in the Company’s statement of cash flows? 2. How should the Company classify the cash received and paid in its statement of cash flows? 3. Does the accounting analysis or conclusion change for each of the questions above when analyzed in accordance with IFRS? USE FASB Codification & IFRS to answer the questions MEMO FORMAT

1. Should the $10 million paid to employees and the $10 million received from WTD be presented gross or net in the Company’s statement of cash flows? 2. How should the Company classify the cash received and paid in its statement of cash flows? 3. Does the accounting analysis or conclusion change for each of the questions above when analyzed in accordance with IFRS? USE FASB Codification & IFRS to answer the questions MEMO FORMAT

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

1. Should the $10 million paid to employees and the $10 million received from WTD be presented gross or net in the Company’s statement of cash flows?

2. How should the Company classify the cash received and paid in its statement of cash flows?

3. Does the accounting analysis or conclusion change for each of the questions above when analyzed in accordance with IFRS?

USE FASB Codification & IFRS to answer the questions

MEMO FORMAT 

On the basis of an independent third-party valuation, the Company concluded that the purchase price paid to the employees ($10 million) exceeded the fair value of common stock by $2.6 million. ASC 718-20-35-7 states, in part: The amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of the equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost. Pursuant to the guidance above, the Company recorded a debit to treasury stock and expense in the amounts of $7.4 million (representing the fair value of the common stock) and $2.6 million (representing the excess of purchase price over fair value), respectively, and a credit to cash.
Transcribed Image Text:On the basis of an independent third-party valuation, the Company concluded that the purchase price paid to the employees ($10 million) exceeded the fair value of common stock by $2.6 million. ASC 718-20-35-7 states, in part: The amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of the equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost. Pursuant to the guidance above, the Company recorded a debit to treasury stock and expense in the amounts of $7.4 million (representing the fair value of the common stock) and $2.6 million (representing the excess of purchase price over fair value), respectively, and a credit to cash.
Case 17-8 Justified Wages Justified Wages Inc. (the "Company") is a privately held provider of cloud-based software platforms for the Internet of Things (IoT). The Company enables product businesses to become IoT service businesses, and helps organizations launch, manage, and monetize the deployment of IoT worldwide. In November 2012, the Company secured financing of $40 million from an independent investor, Well-to-Do Inc. (WTD), in exchange for the following: ● $30 million for the issue of a new series of its Series E Preferred Stock (Preferred Stock), and $10 million for the sale of its shares of common stock ("Common Stock"). The purchase of the Preferred Stock and Common Stock were executed within the same transaction. Thus, WTD paid the same value per share for the Common Stock as it did for the Preferred Stock. This is a common practice among venture capitalists. The Company had previously awarded common stock to employees as share-based compensation. As required by the terms of the financing agreement, the Company conducted a tender offer to repurchase an aggregate of $10 million of common stock from its current employees at a per-share price of $4.68. The common stock reacquired from the employees was then sold by the Company to WTD for a like amount of $10 million. The purchase price of $4.68 was independently negotiated with WTD. The Company acted as a principal in both transactions with WTD and the employees. That is, the Company did not act as an agent to purchase shares from employees on behalf of WTD.
Transcribed Image Text:Case 17-8 Justified Wages Justified Wages Inc. (the "Company") is a privately held provider of cloud-based software platforms for the Internet of Things (IoT). The Company enables product businesses to become IoT service businesses, and helps organizations launch, manage, and monetize the deployment of IoT worldwide. In November 2012, the Company secured financing of $40 million from an independent investor, Well-to-Do Inc. (WTD), in exchange for the following: ● $30 million for the issue of a new series of its Series E Preferred Stock (Preferred Stock), and $10 million for the sale of its shares of common stock ("Common Stock"). The purchase of the Preferred Stock and Common Stock were executed within the same transaction. Thus, WTD paid the same value per share for the Common Stock as it did for the Preferred Stock. This is a common practice among venture capitalists. The Company had previously awarded common stock to employees as share-based compensation. As required by the terms of the financing agreement, the Company conducted a tender offer to repurchase an aggregate of $10 million of common stock from its current employees at a per-share price of $4.68. The common stock reacquired from the employees was then sold by the Company to WTD for a like amount of $10 million. The purchase price of $4.68 was independently negotiated with WTD. The Company acted as a principal in both transactions with WTD and the employees. That is, the Company did not act as an agent to purchase shares from employees on behalf of WTD.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Cash Flow Statement Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS