Financial Reporting Research Class

The research questions (issues) that need to be resolved for CD are:

1. How should Cloudy Day present the preferred stock issued to Well-to-Do Inc. on the balance sheet?

2. How should Cloudy Day value the common stock repurchased from employees?

3. How should Cloudy Day account for the reissuance of the treasury stock to Well-to-Do Inc.?
4. How should Cloudy Day report the stock transactions related to the agreement with Well-to-Do, Inc. on the cash flows statement

**ALSO FIND THE FASB/ASC CODE FOR EACH ANSWER**

Cloudy Day, Inc. (the "Company" or "CD") is a privately held provider of cloud-based software platforms for the "Internet of Things." The software enables product-based businesses to launch, manage, and monetize the deployment of cloud-based systems worldwide. Sales have been growing at 25% annually for the past 3 years. The Company has opened five regional offices in the US in the past two years. CD awarded 100,000 shares of common stock (10% of outstanding common shares) to employees as share-based compensation to reward employees for their contributions to increasing the value of Cloudy Day. CD has the right to repurchase shares from the employees for a price 20% above current fair value and employees agreed they would not sell the shares to another party for three years. The strategy was effective for motivating employees. At the beginning of 2017, CD began talking to investors about issuing shares of ownership in exchange for capital to grow the company. In August 2017, the Company received $40 million from an independent investor, Well-to-Do Inc. (WTD) in exchange for stock. WTD paid CD $30 million for 250,000 shares of newly issued Series E preferred stock (par value $100, stated dividend of 4%), and $10 million for 100,000 shares of common stock. CD has no option or obligation to repurchase the preferred stock. CD's board of directors authorized 1 million shares of Series E preferred stock and CD has no other shares of preferred stock outstanding. The terms of CD's agreement with WTD required CD to conduct a tender offer and pay employee's cash to repurchase 100,000 shares of common stock for a total of $10 million. CD completed the repurchase and then sold the common stock repurchased from employees to WTD for $10 million. The total amount the Company paid to employees ($10 million) for 100,000 shares of common stock exceeded the total fair market value of $7.4 million determined by two independent valuation firms. Cloudy Day granted the shares to employees one year before the investment from WTD. The repurchase of common stock, reissuance of treasury stock, and the issuance of preferred stock all occurred on the same day. WTD purchased the preferred stock and common stock in one contractual transaction. WTD expects the fair market value of common stock to grow at a rate of 20% annually over the next 10 years. WTD has also made significant purchases of the common stock of two of Cloudy Day's competitors in hopes that one of the three companies will become the market leader in cloud-based systems. At the time of the investment, three other venture capitalists were interested in making a capital investment in Cloudy Day