INTERMEDIATE ACCOUNTING (LL) W/CONNECT
9th Edition
ISBN: 9781260679694
Author: SPICELAND
Publisher: MCG
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Chapter 13, Problem 13.20BYP
Real World Case 13–20
Contingencies and Subsequent events
• LO13–5, LO13–6
Real World Financials
The following events are indicated in note 15 of J. Crew’s 10-K annual report for the fiscal year ended January 29, 2011, and its 10-K was filed on March 21, 2011.
Acquisition
On November 23, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Chinos Holdings, Inc., a Delaware corporation (“Parent”). . . . At a special meeting of shareholders held in March 1, 2011, our shareholders voted to approve the Acquisition, and Parent acquired us on March 7, 2011 through a reverse subsidiary merger with J. Crew Group, Inc. being the surviving company. . . .
Litigation
In connection with the Acquisition, between November 24, 2010 and December 16, 2010, sixteen purported class action complaints were filed against some or all of the following: the Company, certain officers of the Company, members of the Company’s Board of Directors, Holdings, the Issuer, TPG, TPG Fund VI and LGP. The plaintiffs in each of these complaints allege, among other things, (1) that certain officers of the Company and members of the Company’s Board breached their fiduciary duties to the Company’s public stockholders by authorizing the Acquisition for inadequate consideration and pursuant to an inadequate process, and (2) that the Company, TPG and LGP aided and abetted the other defendants’ alleged breaches of fiduciary duty. The purported class action complaints sought, among other things, an order enjoining the consummation of the Acquisition or an order rescinding the Acquisition and an award of compensatory damages. Although the Company, the Company’s Board, TPG, and LGP have entered into a memorandum of understanding to settle the actions filed in Delaware, they believe that the claims asserted in that action, as well as the claims asserted in New York and Federally, are without merit and intend to defend against the actions vigorously. The Company has notified its insurers of the actions and believes that any and all costs, expenses, and/or losses associated with the lawsuits are covered by its applicable insurance policies. The Company has recorded a reserve for litigation settlement of $10 million in the consolidated financial statements as of and for the fiscal year ended January 29, 2011.
Required:
1. Is the acquisition a subsequent event? What are J. Crew’s responsibilities in its financial statements with respect to disclosing it?
2. With respect to litigation:
a. Has J. Crew recorded any
b. Do you believe that there is some amount associated with the litigation that J. Crew considers to be probable and reasonably estimable? What about reasonably possible, or probable but not reasonably estimable? Explain your reasoning.
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12 mayo 8:53 pre 15
Question 4 8f 5
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Current Attempt in Progress
On January 15, 2020, the board of directors of Miz Corporation voted to consolidate its outstanding common shares on the basis of
one post-consolidation common share for every 20 pre-consolidation common shares (that is, a one-for-twenty reverse stock split).
Miz Corporation common shares had a market price on January 15, 2020, of $0.50 per share. The shareholders' equity section of
the statement of financial position of Miz Corporation at December 31, 2019, is given below:
Shareholders' equity:
Common shares, unlimited authorized, 10,850,000 shares
issued and outstanding
$54,250,000
Retained earnings (deficit)
(5,020,000)
Total shareholders' equity
$49,230,000
(a)
Determine the number of shares that are outstanding after the consolidation.
Number of shares outstanding after consolidation
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Question 3
E16.12 (LO 3) (Issuance, Exercise, and Forfeiture of Share Options) On January 1, 2022,
Magilla SA granted share options to officers and key employees for the purchase of 20,000 of the
company's C10 par ordinary shares at €25 per share. The options were exercisable by grantees still
in the employ of the company within a 5-year period, beginning January 1, 2024, and ending
December 31, 2028. The service period for this award is 2 years. Assume that the fair value option-
pricing model determines total compensation expense to be €400,00o.
On April 1, 2023, 3,000 options were forfeited when the employees resigned from the company.
The market price of the ordinary shares was C35 per share on this date.
On March 31, 2024, 12,000 options were exercised when the market price of the ordinary shares
was C40 per share.
Instructions
Prenare iournal entries ton record issuance of the share options, forfeiture of the share options,
Chapter 13 Solutions
INTERMEDIATE ACCOUNTING (LL) W/CONNECT
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