Purpose of Case

In practice, accountants frequently encounter problems in which they do not know the answer.Textbooks are intended to introduce a topic, not to provide all the details necessary to work specific problems.Currently, authoritative literature exceeds 25,000 pages.These details are often critical for determining the right answer.Therefore, practicing accountants must use authoritative sources of information rather than rely exclusively on textbooks or other general guidebooks.To be a successful practitioner, you need the ability to analyze a problem, find the most relevant and authoritative guidance to that problem, correctly interpret it, document your findings, properly prepare financial statements, and effectively communicate your findings to others.

The purpose of this assignment is to develop your ability to analyze a problem and then to find and document the most relevant and specific sections of financial accounting standards.It is not the purpose of the assignment to increase your understanding of a topic previously covered.The subject area was chosen in part so that you would not be highly knowledgeable about the topic.You are developing the skill of finding guidance for issues in which you do not already know the answers.

Before you work this assignment

(1) review "FASB Guidance.docx"If you want a video supplement going through an example, also watch the video "Researching_the_ASC."

(2) Study "Case Guidance for 313.docx" and "Arguments Guidance.docx"

(3) Workthe practice mini-Cases, then review the answers and think about how you can improve your future cases

Instructions

Working in groups or having others review your work is academic misconduct.

You MUST justify your answer and follow the instructions in the file "Case Guidance for 313.docx"

Case1This case is adapted from a case from Deloitte Development LLC.

Fuzzy Dice Inc. ("Fuzzy" or "the Company") manufactures novelty items that it distributes to wholesalers and large online and direct-mail retailers. Because of the current overwhelming demand for novelty products, Fuzzy is having a record-breaking year and is holding a large amount of cash on its balance sheet.

Fuzzy operates in an area where several other light manufacturers operate, one of which is Tiny Tots Toys LLC ("Tiny"), an educational children's toy manufacturer. Tiny has been unable to turn a profit for the past few years and has recently filed for Chapter 11 bankruptcy protection. Tiny's primary asset is its manufacturing facility. The location and capabilities of this facility are the key reasons why it represents an acquisition target to Fuzzy. Tiny has no other tangible assets outside of the factory and its small fleet of delivery vehicles. Because of Tiny's recent financial challenges, most of its manufacturing equipment has been neglected and is outdated and falling into disrepair; however, the equipment is currently operational. Tiny does not have any goodwill recorded on its balance sheet but does have some intangible assets such as licenses and product patents.

This morning you received a voice message from Bill Smith, Fuzzy's CFO, informing you that the Company is in the final stages of a transaction structured as an asset acquisition to buy all of Tiny's assets, and tomorrow is the effective date of the acquisition. However, the Company is undecided on how it should use Tiny's factory after the acquisition. The Company will either (1) continue to use the facility to manufacture children's toys and enter another business line alongside its novelty business or (2) renovate the factory in order to expand its novelty item production capacity to grow its current business. Since the acquisition will be structured as an asset purchase rather than a stock purchase, Fuzzy will not assume the employment relationships with the Tiny employees. In both scenarios, Fuzzy expects to hire all the current Tiny employees; however, the Company believes its current workforce is capable of operating the Tiny facility if necessary. Bill would like to speak with you to determine how the Company's decision to use the factory would affect its accounting for the transaction under ASC 805,Business Combinations.

Required:

If Fuzzy decides to operate the factory in its current capacity to manufacture children's toys, should the transaction be accounted for under ASC 805 as an acquisition of a business or an acquisition of assets?

Structure of your response

Your paper should be between 150 and 250 words long. Your first priority is completeness. However,

once that goal is accomplished, you must be concise.

Your first paragraph will define the problem to be solved in very specific terms. The problem is clearly

and concisely stated in a way that provides a natural connection to likely solutions. Limit the purpose to

the topic(s) specifically required by the case. Background information is provided so that the reader

understands the problem to be solved. However, background information should not be provided just

because it is interesting or will be used in your subsequent arguments. Do not attempt to convince the

reader that your paper is interesting. Do not cite outside sources such as accounting standards. Your

introductory paragraph

only

provides background information which helps the reader understand the

problem

. Your concluding sentence is a very brief summary of your conclusion. It is extremely

important to be clear about what is from the facts of the case and what is based on the following

arguments. In total, you should have four to six moderate length sentences in the first paragraph.

All text between the first and last paragraph are arguments. See the document "Arguments.docx" for

guidance on making these arguments. Most important, each argument shall first provide specific citations

to the ASC, cite the facts of the case, then draw a conclusion. Students often combine these steps.

The final paragraph provides the overall conclusion to your paper. This conclusion fulfills the purpose of

the assignment as stated in the introduction. This paragraph summarizes and ties together your prior

arguments. The conclusion leaves no open questions relevant to the stated purpose. Only the most

relevant information is included.

Grading

Your paper will be graded on the extent to which it follows this guidance and meets the expectations in

this document and the document "Arguments.docx"

Using the ASC and other source materials

To access the professional literature, go to the "Accounting Standards Codification Link" in this Module.

This user ID and password are valid for all UNL students, but only for UNL students. Please do not share

this password outside of this group.

Please study the file "FASB Guidance.docx" for instructions on how to use the Accounting Standards

Codification (ASC). This is a summary of the FASB's document "How to use the Codification.pdf" It is

also very helpful to review "Key Things to Keep in Mind.docx" In addition to that guidance, be

consistent with the original source (e.g., use ASC "420-20-05-5" instead of "420-20-5-5.") No footnote

or reference should be used, but you should write out any acronym [e.g., write "Accounting Standards

Codification (ASC)"] the first time you use it.

Each of your assertions about GAAP should be supported with specific citations. However, do not use

citations just to demonstrate that you can.

Quoting the ASC provides the most specific and verifiable information. However, sometimes it is not

possible to quote the ASC in a sufficiently concise manner. In this case, paraphrase the relevant portions.

Make sure you paraphrase accurately. Your paraphrase should include all necessary information and omit

all unnecessary information. Do not mix your paraphrase with facts of the case or the conclusion. Make

sure that the reader will easily understand the distinction between the material you are citing, the facts of

the case, and your conclusions. This is a very common problem with student papers.

You must use quotation marks when text is not paraphrasedotherwise, it is plagiarism, even when you

cite the source. Everyone should be extremely careful to avoid plagiarism, but foreign students should be

particularly careful because many things considered plagiarism in the U.S. are viewed as perfectly

normal, even desirable, in many other countries. Also, plagiarism is considered a far more serious offense

in the U.S. than it is in many other countries. Having cautioned you, I will say that a bit more leeway is

allowed when citing the ASC than to most other sources. There is no precise cutoff of how many direct

words of the ASC are allowed to be cited without using quotation marks, but as long as you are including

the specific ASC section number, more is allowed than for most other sources.

Do not use sources other than the ASC.

Avoid implying that the ASC mentions your case. Students sometimes mean to say that a particular ASC

is applicable, but their wording implies that the ASC specifically mentions the companies in your case.

For example, a student wrote "Accounting Standards Codification (ASC) 810-10 Consolidation: Overall

determines the financial reporting consolidation requirements that pertain to the organizations in the

"Venturing into Consolidations" case." A better wording would be "Accounting Standards Codification

(ASC) 810-10 is the most relevant ASC section to the 'Venturing into Consolidations' case." Also, the

sentence is superfluous. It should be obvious that your specific citations are the most relevant.

In the first case, do NOT use any ASC guidance marked as "pending." In the second case, use any ASC

guidance marked as "pending," to the extent appropriate.

Never use ASC "implementation guidance" without first citing the main body of the ASC.

Implementation guidance only applies to that ASC section. If is often very misleading when applied to an

incorrect ASC section.

Grammar, clarity, and conciseness.

Clarify whether a condition is sufficient or necessary. If one of the

sufficient

conditions is met, there is no

need to mention any of the other conditions. If none of the sufficient conditions are met, they all must be

discussed. If one of the necessary conditions is not met, there is no need to mention the others. If all of

the necessary conditions are met, they all must be discussed. If there is uncertainty about whether a

condition is met, discuss when, and only when, it is potentially relevant. For example, conditions A and

B are necessary to draw the conclusion C. If A is not met, then we know that C is not valid, and

therefore, it is irrelevant whether there is any uncertainty about whether condition B is met.

Be concise within each sentence. For example, a student in a prior semester wrote "There were numerous

reasons given to justify the acquisition of Nextel by Sprint. Some of the reasons given in Sprint's

presentation on December 15, 2004 regarding the merger stated that the merger would accelerate..." This

is more concisely stated as "There were numerous reasons given to justify Nextel's 2004 acquisition of

Sprint including that the merger would accelerate..." Another student wrote "The first step to analyzing

Wendy's International's involvement with Baja Fresh is to examine the financial information related to

the acquisition of Baja Fresh." The last three words, "of Baja Fresh," were redundant. It would also

have been more concisely stated as "First, I examine Wendy's and Baha's financial information at the

time of the acquisition." "ASC 1010-10-10-10 states" is both more appropriate and more concise than

"According to ASC 1010-10-10-10."

Be concise within each paragraph. Avoid extraneous and redundant sentences. Avoid using multiple

paragraphs, whether consecutive or not, to make the same point. Omit facts which are not necessary for

the development of your arguments.

Avoid excessive precision. Three significant digits are normally sufficient. For example, "$15.573

billion" should normally be written as "$15.6 billion." Do not use numbers less than 1 unit of

measurement. For example, "$1.05 billion" is fine, but "$0.95 billion" should be written as "$950

million."

The word "assume" has a very different meaning than the word "conclude." Avoid the words "assume"

and "assumption."

Be sure that the reader will understand whether each factual statement is from the case, the ASC, or your

conclusion.

It is almost always true that "affect" is a verb and "effect" is a noun.

Periods go inside parentheses

only

if the entire sentence is inside the parentheses. Periods and commas

belong inside closed quotation marks. Punctuation rules are different outside the United States.

If you would like more guidance on grammar, there are several excellent books including "Painless

Grammar" and "The English Language: A User's Guide." There are also several excellent books which

focus on

business

grammar, writing, and communication. Each of these books is typically $10-$15.

You can test and improve your grammar skills with online quizzes like the ones found at

http://www.academicenglishcafe.com/quizzes.html

The FASB's "How to use the Codification" can be a helpful resource

when using the Accounting Standards Codification (ASC). However, it is

extremely long (207 pages) and much of the information is not relevant for

us. This document is a brief summary. You need this information to

conduct your ASC projects. Refer to the FASB document as needed. Page

numbers referenced in this document are always from the FASB's "How to

Use the Codification."

The login instructions on pp. 3-4 are incorrect for university users.

Instead, login here:

http://www2.aaahq.org/ascLogin.cfm

Username: AAA51154, Password and X57whRN You may share the

password only with UNL students!

Gain a general understanding of what the ASC does and doesn't

contain (pp. 2-3).

The BEST strategy to finding the relevant material is called

"systematic browsing." You probably wouldn't think to use it given most

people's reliance on Google. Instead of using the search function, look at

the headings and organization of the ASC and then drill down. First, decide

which of the main sections are most relevant for your particular question.

The main sections are general principles, presentation, assets, liabilities,

equity, revenue, expenses, broad transactions, and industry. Study the

main topics and subtopics on page 13

closely

so you will have a good idea of

the best place to start. There is also a "Master Glossary" for definitions.

When using the ASC, the main topics will appear on the left side of your

screen.

If your question is

general

requirements related to displaying items in

the statements, you should start with "Presentation." However, if your

question is about a specific element (e.g., inventory) or falls under one of

the "broad transaction" type listed (e.g., leases), you should start with that

element or broad transaction. Let's take an example. Suppose you are

looking for possible write-downs of inventory. Since inventory is an asset,

you select "Assets." After selecting "Assets" you will see several

subsections including one for "Inventory." Under the "Table of Contents" of

"Inventory," you will see a "+10 Overall" and other sections for specialized

industries. Unless your question pertains to a specific industry, you should

select "+10 Overall." If you are in one of the special industries listed (e.g.,

agriculture), select that industry (e.g., 330-10-905). This structure will be

the same for the other sections of the ASC.

First, quickly look at the "Scope" section, in this case 330-10-15. It

tells us that 330-10 does not necessarily apply to nonprofits and regulated

industries (e.g., electric utility). If your situation is one of these, look to

special sections dealing with them. Otherwise, continue.

Within 330-10, the first decision you would make here is between

"Initial Measurement," "Subsequent Measurement," "Other Presentation

Matters," and "Disclosure." Unless you only need a list of changes made or

some background information pertaining to inventory, you can skip or skim

the earlier sections. "Initial measurement" means at the time of acquisition.

A write-down of inventory falls under "subsequent measurement" so select

it and the expand "General." (Tip: You can click "Join all Sections" under

"330-10" to all of 330-10 without having to click on each section

individually.) At this point, you will likely need to read or skim all of the

material in that section. Suppose you decide the first sentence is relevant

and you wish to cite it. You would refer to it as ASC 330-10-35-1.

Three-digit sections can also have scope limitations. Some of them

tell you what the section applies to. For example, 740-20-15-2 states "The

guidance in this Subtopic [740-20-15] applies to the process of allocating

total income tax expense or benefit of an entity for a period to different

components of comprehensive income and shareholders' equity." Other

scope limitations tell you want the section excludes. See pp. 39-41 for a

very detailed example of scope limitations.

Only public companies are regulated by the SEC. A "public" company

has stock or bonds traded by the public. The SEC has additional

requirements for public companies which do not apply to private

companies. SEC regulations are prefaced by an "S." For example, 330-10-

S35 only applies if the company is a public company. In the example above,

if your company was public, you would need to examine 330-10-35 first and

then S330-10-35. The SEC rules are supplemental so look at the primary

rules first.

"Implementation Guidance" rules are normally "55" numbers (e.g.,

330-10-55). Do not use a standard's "implementation guidance" to justify

that the standard is applicableimplementation guidance

assumes

that the

standard is applicable. Do not use implementation guidance without first

citing the primary part of the standard. This will assure the reader that the

implementation guidance is applicable and connects directly to the issue at

hand. Implementation guidance is supplemental. Use it only when a full

and complete answer cannot be obtained from the primary part of the

standard.

You are REQUIRED to cite the most specific applicable guidance and

to

exclude

guidance which is not directly applicable. For example, 740-20-

45-2 would be used if you need to show

all

categories that income tax

expense or benefit should be allocated to. If your question only applies to

discontinued operations, cite 740-20-45-2b.

You can skip the "Citation Styles" section of the "How to Use..."

document (pp. 48-53). For this course, simply use the numbers (e.g., 740-

20-45-2) instead of descriptions. The "Annotation" feature is not available

to us (pp. 64-68).

You will not need "archived content" (pp. 91-97).

"Because a specific glossary term can have different definitions in

different contexts, do not assume that a definition of a term applies to all

uses of the term. Be aware of the term's definition in each context in which

the term is used (p. 102)."

Nonauthoritative content (pp. 107-115) is ONLY used when there is

insufficient authoritative content. Nonauthoritative content in the ASC is

incomplete, particularly with regard to very recent changes, industry guides

issued by other parties, SEC regulations not directly tied to the ASC, and

International Accounting Standards. If you use it, you must explicitly state

that it is nonauthoritative and provide a detailed justification of why you did

not use authoritive content.

Using the search function is not as effective as systematic browsing.

Its only advantage is that it can help you find answers more quickly. Only

use it if all of the following apply: you have a very specific question, you

already know which topics are likely to contain the right information, and

you already know the keywords used in the ASC. These conditions do not

apply to an inexperienced user. Further, it is far more difficult to make

effective use of it than Google. Chapters 12 and 13 (pp. 116-140) provide

detailed descriptions of how to use search.

The remaining chapters are also not relevant for us. Chapter 14,

Keeping Track of Changes in the ASC (pp. 141-158), is for practicing

accountants who maintain or audit ongoing systems. It is not relevant to

beginners. Chapter 15 is primarily relevant for those already familiar with

pre-ASC standards. Chapter 16 is a guide for regular users to become more

efficient. Chapter 17 is only relevant if you are linking the XBRL financial

statement elements to the ASC. These XBRL elements are used for

reporting to the SEC.