16 Jun ACC 499 Week Discussions
Question
ACC 499 Week Discussions
1. Discuss the issues the lease agreement raises from an ethical and financial reporting point of view.
2. Tom Twitlet, president of Twitlet Corporation, is considering establishing a compensatory share option plan for the company’s 20 top executives. Tom wants to set the terms of the plan so that the number of options the executives can exercise increases based on a specified increase in the company’s future earnings. Tom wants to make sure that the plan cannot be manipulated but, in addition, it should properly motivate the executives to stay with the company and make it successful. Given this concern, he wants to know how the increase in earnings should be specified: Should it be a dollar amount or a percentage change, and should the change in earnings be compared to the company’s past results or against industry results? He also is interested in understanding how to determine the service period of the plan. Finally, Tom wants to understand the accounting for the plan and how it will affect the company’s financial statements. Prepare a memo that explains the issues involved in the terms used in this plan. Discuss the accounting for the terms of this type of compensatory share option plan.
3. You are an accountant for Davanzo Company. The president of the company calls you into her office and says, “I want to ask you about two issues. First, we need to sell one of our investments to raise $1 million because I think I have found a better investment. We could sell the bonds of Company X, which are currently worth $1 million even though they have an amortized cost basis of $950,000. But I don’t want to sell them because I like the steady stream of cash flow we get related to interest. Or we could sell the bonds in that dog, Company Z. These bonds are also worth $1 million, but they cost us $1.2 million. I hate to admit we made such a big mistake, and if they can somehow avoid bankruptcy, we may actually recover our investment. And then there’s that loss. I don’t want to report that. Second, I am going to use the $1 million to buy about 20% of the shares of Company M, but I seem to remember that there is some accounting rule that might affect how much we buy. I was also wondering about buying some of Company M’s convertible preferred stock so we can convert that into a large ownership position in the future. Let me know what you think.” You are aware that Company M is a new company that is not yet listed on the stock market, has been making losses, and is expected to continue making losses for a few more years. Discuss the issues raised from a financial reporting and ethical perspective.
4. Use the Internet to research recent articles (within the last two years) on fair value measurement of assets for financial reporting. Evaluate the potential interaction of IFRS13 fair value measurement with other IFRS fair value measurement standards. Create an argument for the increased disclosure requirements under IFRS 13 as compared to other IFRS standards addressing fair value measurement. Provide support for your argument.
5. Compare and contrast the differences between asset impairment under U.S. GAAP and IFRS. What are the financial statement implications of these differences?
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