Justified Wages Inc. (the Company) is a privately held provider of cloud-based software platforms for the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Justified Wages Inc. (the "Company") is a privately held provider of cloud-based software platforms for the Internet of Things (loT). The Company enables product businesses to become loT service businesses, and helps organizations launch, manage, and monetize the deployment of loT worldwide. In November 2012, the Company secured financing of S40 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 • S10 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 S4.68 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. On the basis of an independent third-party valuation, the Company concluded that the purchase price paid to the employees (S10 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. Required: 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 IFRSS? Justified Wages Inc. (the "Company") is a privately held provider of cloud-based software platforms for the Internet of Things (loT). The Company enables product businesses to become loT service businesses, and helps organizations launch, manage, and monetize the deployment of loT worldwide. In November 2012, the Company secured financing of S40 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 • S10 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 S4.68 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. On the basis of an independent third-party valuation, the Company concluded that the purchase price paid to the employees (S10 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. Required: 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 IFRSS?
Expert Answer:
Related Book For
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
Students also viewed these accounting questions
-
The Howard Leasing Company is a privately held, medium-sized business that purchases school busses and leases them to school districts, churches, charitable organizations, and other businesses. To...
-
Maine Lobster Company is a privately held company that buys lobsters from local fishermen and then delivers them to restaurants in several of Maines larger cities. The owners use variable costing...
-
Nova Scotia Lobsters Company is a privately held company that buys lobsters from local fishermen and then delivers them to restaurants in several of Nova Scotia's larger cities. The owners use...
-
In April 1999, one of Capital Blue Cross' health-care insurance plans had been in the field for three years, but hadn't performed as well as expected. The ratio of premiums to claims payments wasn't...
-
A financial analyst believes that if interest rates decrease in a given period, then the probability that the stock market will go up is 0.80. The analyst further believes that interest rates have a...
-
(a) Compute the monthly excess returns on the United States stock Exxon and the market excess returns. (b) Compute the variances and covariances of the two excess returns. Interpret the statistics....
-
The ____________ decision model views individuals as making optimizing decisions, whereas the ____________ decision model views them as making satisficing decisions. (a) behavioral/judgmental...
-
Hemlo Inc. is a manufacturing company. Because of the nature of its products it can sometimes be difficult to determine their NRV. In the year ended December 31, 2017 Hemlos management estimated that...
-
The following detailes are fo the salaried employees: Gross Wedges: $ 39100 Income Taxes: $ 7038 Canada Pension Plan: $ 1994 Employment Insurance: $ 633 Charitable Donations: $ 354 Medical Benefits(...
-
a. During February, $194,500 was paid to creditors on account, and purchases on account were $210,400. Assuming that the February 28 balance of Accounts Payable was $62,500, determine the account...
-
Required information [The following information applies to the questions displayed below.) Tree Seedlings has the following current-year purchases and sales for its only product. Date January 1...
-
Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000, and its remaining useful life is 5 years. Annual costs are...
-
According to Drury ( 2 0 2 1 ) , allowing managers and employees to participate in the setting of performance target has several advantages. Explain three advantages.Discuss how the difficulty in...
-
Use the four-step process to find the slope of the tangent line to the graph of the given function at any point. (Simplify your f(x) = 6 - 2x Step 1: Step 2: Step 3: Step 4: f'(x) = lim h0 f(x + h) =...
-
Common stock is valued at $1,000,000 and costs $0.20. Bonds are valued at $850,000 and cost $0.04. Preferred stock is valued at $500,000 and costs $0.06. The tax rate is 40%. What is the pre-tax WACC?
-
A machine has a first cost of P 7 3 5 0 0 and a salvage value of P 3 5 0 0 at the end of its useful life of 8 years. Evaluate the depreciation of the machine at during the 5 th year using the...
-
Blue Spruce, Inc. has budgeted sales revenues as follows: June July August Credit sales $145,000 $125,000 $92,000 Cash sales Total sales 95,000 253,000 200,000 $240,000 $378,000 $292,000 Past...
-
Choose a company from the SEC EDGAR Web site for your Key Assignment to evaluate for the impact of convergence to IFRS. Review the financial reports and notes of the company you have chosen from the...
-
How does this gain compare to the gain in the MM model with corporate taxes? MINI CASE David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing. The company...
-
What unique problems do not-for-profit businesses encounter in financial analysis and planning? What about short-term financial management? MINI CASE Sandra McCloud a finance major in her last term...
-
1. Construct an amortization schedule for a $1,000, 10 percent annual rate loan with 3 equal installments. 2. What is the annual interest expense for the borrower, and the annual interest income for...
-
What is the drawback of company rankings based on EVA?
-
If EPS rises after a deal, does this necessarily imply value creation?
-
Can value be created by developing new products and new markets or by reducing costs?
Study smarter with the SolutionInn App