Question

Assignment 1

COPY & PASTE GAAP CODIFICATION FOR ANSWER

For each of the following questions, (1) cut and paste the appropriate paragraph(s) from the Accounting Standards Codification to answer the question and (2) give the full citation for each paragraph. Your answer should only consist of the full paragraph(s) directly from the Codification and the citation for each paragraph.

1.      What conditions are necessary for a company to allow its employees to purchase company stock under a plan established by the company and not recognize compensation expense related to the plan?

2.      Company A has a foreign subsidiary that must be consolidated. How does Company A determine the appropriate functional currency for the subsidiary?

3.      When should Company A recognize a liability associated with a tax deduction taken on its current year tax return that has potential to be disallowed if Company A is audited?

4.      How does Company A evaluate goodwill associated with a business combination in 2018 for impairment? Company A is a publicly traded company and has elected to early-adopt ASU 2017-04.

5.      Under what circumstances would Company A have to recognize a liability associated with the retirement of a long-lived tangible asset?

Assignment 1 COPY & PASTE GAAP CODIFICATION FOR ANSWER For each of the following questions, (1) cut and paste the appropriate paragraph(s) from the Accounting Standards Codification to answer the question and (2) give the full citation for each paragraph. Your answer should only consist of the full paragraph(s) directly from the Codification and the citation for each paragraph 1. What conditions are necessary for a company to allow its employees to purchase company stock under a plan established by the company and not recognize compensation expense related to the plan? 2. Company A has a foreign subsidiary that must be consolidated How does Company A determine the appropriate functional currency for the subsidiary 3. when should Company A recognize a liability associated with a tax deduction taken on its current year tax return that has potential to be disallowed if Company A is audited? 4. How does Company A evaluate goodwill associated with a business combination in 2018 for impairment? Company A is a publicly traded company and has elected to early-adopt ASU 2017-04 5. Under what circumstances would Company A have to recognize a liability associated with the retirement of a long- lived tangible asset?

Answer 1

1. Subtopic 718 - 50 does not recognize compensation cost for ESPPs that are nondiscriminatory, incorporate no option features (such as a purchase price “look-back” provision), and provide for purchase discounts of 5 percent or less.

2. Three steps involved in determining the appropriate function currency for the subsidiary:

• Determination of the reporting currency of the consolidating enterprise, and determination of the functional currency of each business entity which is separately accounted for (i.e. a foreign subsidiary or an international business unit);
• Remeasurement of transactions executed in a foreign currency; recalculating transactions done in a currency other than the functional currency from the foreign currency to the functional currency of the business entity – this will provide insight into the translation gains and losses incurred resulting from transactions executed in foreign currencies, and these results will be recognized in the income statement;
• Translation and restatement of the business entities’ accounts into the reporting currency of the consolidating enterprise – this will enable consolidation and show the required adjustment to equity as a result of consolidating an entity with a functional currency different from the company’s reporting currency, and this adjustment will be accounted for as Cumulative Translation Adjustment (CTA) as part of equity under the Other Comprehensive Income (OCI) account.

3. FASB Interpretation No. 48 - Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109

An enterprise shall initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. As used in this Interpretation, the term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. The more-likelythan-not recognition threshold is a positive assertion that an enterprise believes it is entitled to the economic benefits associated with a tax position. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold shall consider the facts, circumstances, and information available at the reporting date.

4. a. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.

b. In determining the carrying amount of a reporting unit, deferred income taxes shall be included in the carrying amount of the reporting unit, regardless of whether the fair value of the reporting unit will be determined assuming it would be bought or sold in a taxable or nontaxable transaction.

c. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Additionally, an entity shall consider the income tax effect from any tax deductible goodwill on the carrying amount of the reporting unit, if applicable, in accordance with paragraph 350-20-35-8B when measuring the goodwill impairment loss.

d. If a reporting unit has tax deductible goodwill, recognizing a goodwill impairment loss may cause a change in deferred taxes that results in the carrying amount of the reporting unit immediately exceeding its fair value upon recognition of the loss. In those circumstances, the entity shall calculate the impairment loss and associated deferred tax effect in a manner similar to that used in a business combination in accordance with the guidance in paragraphs 805-740-55-9 through 55-13. The total loss recognized shall not exceed the total amount of goodwill allocated to the reporting unit.

5. Retirement obligations will be recognized when they are incurred and displayed as liabilities. Thus, more information about future cash outflows, leverage, and liquidity will be provided. Also, an initial measurement at fair value will provide relevant information about the liability.