Real Value Corporation Real Value Corporation (the Company), is a public company (and an SEC registrant)...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Real Value Corporation Real Value Corporation (the "Company"), is a public company (and an SEC registrant) that creates augmented reality technology. The Company's primary source of revenue is currently from universities that use the Company's products to superimpose computer- generated images in the classroom to enhance learning. In addition to its ordinary business activities, the Company invests in equity securities (described below) to generate investment income, which is the case for all investments made by the Company as described herein. The Company's fiscal year-end is December 31. The Company files quarterly and annual financial statements with the SEC. The Company purchases equity securities in the form of Series A preferred stock of Company X (a private company) on February 1, 2019. The Company concludes that the equity security does not have a readily determinable fair value and that it does not qualify for the practical expedient to estimate fair value in accordance with ASC 820-10-35-59. In its Q1 2019 financial statements, the Company accounts for this investment in accordance with ASC 321, as amended by ASU 2018-03 and ASU 2019-04;' the Company elects the measurement alternative in ASC 321-10-35-2 on the date of purchase, as it does for all its investments described herein. The terms for the Company X Series A preferred stock are as follows: • Has substantive liquidation preference over any other class of shares Company X has outstanding (these Series A shares would retain its substantive liquidation preference over any class of shares Company X may issue at any point in the future). • Has no voting rights. • Can elect two members of the board of directors. • Receives dividends that are cumulative and participatory. • Can be converted to common stock at any time at the holder's option. Second Quarter Events On April 1, 2019, the Company purchases additional shares of Series A preferred stock of Company X as a part of an offering that Company X made to multiple investors; the price paid is greater than what the Company paid in its purchase on February 1, 2019. On May 1, 2019, the Company purchases equity securities in the form of Series A preferred stock of Company Y (a private company). This Company Y Series A preferred stock provides for similar rights and obligations provided for by the Company X Series A preferred stock, but the price paid for the Company Y Series A preferred stock is greater than what the Company paid when it purchased Company X Series A preferred stock on April 1, 2019. On June 1, 2019, the Company purchases shares of Series B preferred stock of Company X as a part of an offering that Company X made to multiple investors. The price paid is less than what the Company paid when it purchased Series A preferred stock of Company X on February 1, 2019. The terms for the Company X Series B preferred stock are identical to the Company X Series A preferred stock except for the following: • Series A has a substantive liquidation preference over Series B. • Can only elect one member of the board of directors. • Receives dividends that are noncumulative. • Series A has dividend preference over Series B (i.e., Series A will receive dividends, if declared, before Series B). • Shares cannot be converted to common stock. Fourth Quarter Events On November 1, 2019, Company Y issues additional shares of Series A preferred stock only to Company Y's original investor (no additional shares were offered the Company given that the Company was not the original investor). Required: 1. For purposes of the Q1 2019 financial statements, what criteria must the investment in Series A preferred stock of Company X meet to be eligible for the measurement alternative in ASC 321-10-35-2? 2. Given its election of the measurement alternative in ASC 321-10-35-2, how is the Company required to measure the equity security as of March 31, 2019? 3. For purposes of the Q2 2019 financial statements, how would the additional shares of Series A preferred stock purchased of Company X on April 1, 2019, affect the measurement of the Series A preferred stock purchased of Company X on February 1, 2019? 4. For purposes of the Q2 2019 financial statements, how would: a. The observable transactions related to the shares of Series A preferred stock purchased of Company Y on May 1, 2019, affect the measurement of the Series A preferred stock purchased of Company X? Copyright © 2020 Deloitte Development LLC All Rights Reserved. Case 17: Real Value Corporation: Page 3 b. The shares of Series B preferred stock purchased of Company X on June 1, 2019, affect the measurement of the Series A preferred stock purchased of Company X? Assume that evaluating the terms of Series A and Series B preferred stock, to consider the significance of the impact on the fair value of the Series A preferred stock, would require very complex valuation work. 5. For purposes of the 2019 annual financial statements, how would the additional shares of Series A preferred stock issued from Company Y to Company Y's original investor on November 1, 2019, affect the measurement of the Series A preferred stock purchased of Company Y on May 1, 2019? Real Value Corporation Real Value Corporation (the "Company"), is a public company (and an SEC registrant) that creates augmented reality technology. The Company's primary source of revenue is currently from universities that use the Company's products to superimpose computer- generated images in the classroom to enhance learning. In addition to its ordinary business activities, the Company invests in equity securities (described below) to generate investment income, which is the case for all investments made by the Company as described herein. The Company's fiscal year-end is December 31. The Company files quarterly and annual financial statements with the SEC. The Company purchases equity securities in the form of Series A preferred stock of Company X (a private company) on February 1, 2019. The Company concludes that the equity security does not have a readily determinable fair value and that it does not qualify for the practical expedient to estimate fair value in accordance with ASC 820-10-35-59. In its Q1 2019 financial statements, the Company accounts for this investment in accordance with ASC 321, as amended by ASU 2018-03 and ASU 2019-04;' the Company elects the measurement alternative in ASC 321-10-35-2 on the date of purchase, as it does for all its investments described herein. The terms for the Company X Series A preferred stock are as follows: • Has substantive liquidation preference over any other class of shares Company X has outstanding (these Series A shares would retain its substantive liquidation preference over any class of shares Company X may issue at any point in the future). • Has no voting rights. • Can elect two members of the board of directors. • Receives dividends that are cumulative and participatory. • Can be converted to common stock at any time at the holder's option. Second Quarter Events On April 1, 2019, the Company purchases additional shares of Series A preferred stock of Company X as a part of an offering that Company X made to multiple investors; the price paid is greater than what the Company paid in its purchase on February 1, 2019. On May 1, 2019, the Company purchases equity securities in the form of Series A preferred stock of Company Y (a private company). This Company Y Series A preferred stock provides for similar rights and obligations provided for by the Company X Series A preferred stock, but the price paid for the Company Y Series A preferred stock is greater than what the Company paid when it purchased Company X Series A preferred stock on April 1, 2019. On June 1, 2019, the Company purchases shares of Series B preferred stock of Company X as a part of an offering that Company X made to multiple investors. The price paid is less than what the Company paid when it purchased Series A preferred stock of Company X on February 1, 2019. The terms for the Company X Series B preferred stock are identical to the Company X Series A preferred stock except for the following: • Series A has a substantive liquidation preference over Series B. • Can only elect one member of the board of directors. • Receives dividends that are noncumulative. • Series A has dividend preference over Series B (i.e., Series A will receive dividends, if declared, before Series B). • Shares cannot be converted to common stock. Fourth Quarter Events On November 1, 2019, Company Y issues additional shares of Series A preferred stock only to Company Y's original investor (no additional shares were offered the Company given that the Company was not the original investor). Required: 1. For purposes of the Q1 2019 financial statements, what criteria must the investment in Series A preferred stock of Company X meet to be eligible for the measurement alternative in ASC 321-10-35-2? 2. Given its election of the measurement alternative in ASC 321-10-35-2, how is the Company required to measure the equity security as of March 31, 2019? 3. For purposes of the Q2 2019 financial statements, how would the additional shares of Series A preferred stock purchased of Company X on April 1, 2019, affect the measurement of the Series A preferred stock purchased of Company X on February 1, 2019? 4. For purposes of the Q2 2019 financial statements, how would: a. The observable transactions related to the shares of Series A preferred stock purchased of Company Y on May 1, 2019, affect the measurement of the Series A preferred stock purchased of Company X? Copyright © 2020 Deloitte Development LLC All Rights Reserved. Case 17: Real Value Corporation: Page 3 b. The shares of Series B preferred stock purchased of Company X on June 1, 2019, affect the measurement of the Series A preferred stock purchased of Company X? Assume that evaluating the terms of Series A and Series B preferred stock, to consider the significance of the impact on the fair value of the Series A preferred stock, would require very complex valuation work. 5. For purposes of the 2019 annual financial statements, how would the additional shares of Series A preferred stock issued from Company Y to Company Y's original investor on November 1, 2019, affect the measurement of the Series A preferred stock purchased of Company Y on May 1, 2019?
Expert Answer:
Answer rating: 100% (QA)
Q1 Criteria to be met in series A preferred stock of company X to be eligible for the measurement alternative in ASC 32110352 In accounting there are some criteria taken in hand by the organization to ... View the full answer
Related Book For
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
Posted Date:
Students also viewed these accounting questions
-
The Shaw Navigational Company is a public Canadian corporation that operates a fleet of ships on the Great Lakes. In common with other Great Lakes shipping companies, rates are quoted and revenues...
-
The company is a golf course developer that constructs approximately 10 courses per year. Next year the company will buy 10,000 trees to install in the courses it builds. In recent years, the price...
-
The objective of this problem is to solve the following LP using 3 different methods: Max Z = 5x1 + 8x2 Subject to 3x1 + 2x2 23 X + 4X2 24 X + X5 and X20, X 20 Resolution Method 1: Using Graphical...
-
Busy plc, an all equity-financed firm, has three strategic business units. The polythene division has capital of 8m and is expected to produce returns of 11 per cent for the next five years....
-
Government G levies an income tax with the following rate structure. Percentage RateBracket 6% .Income from 0 to $30,000 10 .Income from $30,001 to $70,000 20 .Income from $70,001 to $200,000 28...
-
Problems concern g(t) in Figure 2.35, which gives the weight of a human fetus as a function of its age. (a) Which is greater, g'(20) or g'(36)? (b) What does your answer say about fetal growth?...
-
Expand $6 \sqrt{\Pi_{k=1}^{3} \Pi_{m=1^{\prime}}^{2^{\prime}} D_{k m}}$
-
One of Philip Mahns investments is going to mature, and he wants to determine how to invest the proceeds of $30,000. Philip is considering two new investments: a stock mutual fund and a one-year...
-
. Munchkin Son. Bhd. is a company involves in producing cookies. The company closes its accounts 30 September every year. The following information is relating to its non-current assets for the...
-
The Home Depot is the worlds largest home improvement retailer and one of the largest retailers in the United States based on net sales volume. The Home Depot operates over 2,200 Home Depot stores...
-
Describe opponents strengths weaknesses, your strategies and competitive advantage in this negotiation. You are the project manager of the Government Services Group at New Westminster Computing, a...
-
The radius of our Sun is 6.96x108 m, and its total power output is 3.85x1026 W. a. Assuming the Sun's surface emits as a blackbody, calculate its surface temperature. b. What is the Sun's peak...
-
How can IKEA minimize its weaknesses to protect itself from external threats ?
-
-x+3 if x < 2 #62 Consider the function G(x) = Find the value of each. If a limit does not x+1 if x 2 exist, state DNE. (Using the domain to figure out which rule to use) a) lim G(x)= x-2- b) lim...
-
Write a program that implements and uses a class called MyRectangle. Data items should include: length, width, color, and label. Define properties with appropriate accessor functions for each of the...
-
1. Roberta thinks that cycling is the best way to explore a new city. On her visit to Paris, she cycled 75 kilometers to get to her next Airbnb in the neighboring town. The town was due east of...
-
The following table contains the number of successes and failures for three categories of a variable. Test whether the proportions are equal for each category at the a=0.01 level of significance....
-
SBS Company have received a contract to supply its product to a Health Care Service Hospital. The sales involve supplying 1,250 units every quarter, the sales price is RM 85 per unit. The Client...
-
Selected financial data for a recent year for two discount retail chains, Walmart Stores, Inc. and Target Corporation, are presented here (in U.S. $ millions, except for share price): Instructions...
-
(a) What factors should a company consider when choosing among the straight-line, diminishing-balance, or units-of-production depreciation methods? (b) When choosing between the cost model or...
-
Selected transactions for Green Lawn Care Ltd. follow: 1. Issued common shares to shareholders in exchange for $5,000 cash. 2. Purchased $250 of supplies on account. 3. Billed customers $2,500 for...
-
1. The German-American Vocational League was formed in New York during World War II to serve as a propaganda agency for the German Reich. Under U.S. law all foreign agents were required to register....
-
3. David and Fiona Rookard purchased tickets for a trip through Mexico from a Mexicoach office in San Diego. Mexicoach told them that the trip would be safe. It did not tell them, however, that their...
-
2. ETHICS Radio TV Reports (RTV) was in the business of recording, transcribing, and monitoring radio and video programming for its clients. The Department of Defense (DOD) in Washington, D.C., was...
Study smarter with the SolutionInn App