Verizon 11:41 AM 88%-, Done 7 of 7 1. XYZ telecom is promoting a new phoneiservi
ID: 377168 • Letter: V
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Verizon 11:41 AM 88%-, Done 7 of 7 1. XYZ telecom is promoting a new phoneiservice package that includes a company brans ce phone and a prepaid card Customers who purchase the package may laher purchae prepaid card from company XYZ or any of its distributors Should the package (phone prepaid card) be treated as a single unt of accounting? (10pts) 2 Provide an example of startup cost (5pts) and a oost that should be deferred (Spts) 3. Discuss the accounting treatment for Asset Retirement Obligation. (Spts) What is rationale for capitalizing ARO instead Through what accounts are used to allocate ARO over time? (4pts) (5pts) what is the underlying of expensing it at the time of asset retirement? (3pts) 4. Company A and B together created a separate legal entity (Company C) Company A contributes $80 million in cash and receives 80% Company B contributes $20 Company B conducts substantially e interest, Company B has an option to put its investment in of common stock and 50% vote million in cash and receives 20% of common stock and 50% vote y all the entity's activities. Furthermore, embedded in its equity Company C's common stock back to Company C for the greater of $20 million or appraised value after two years Company C's expected losses are S60 million. Evaluate the anti-abuse clause. Does it apply to this case? Why or why not? (8pts) b. List the three conditions for VIE in ASC 810 and determine if company C is a VIE by evaluating each condition. (15pts) Who is the primary beneficiary of Company C? (6pts) Assuming Company B no longer has the put option on its investment, does it change your answer to b? (10pts) c. 5. SF Corporation has a mortgage-back security that is traded in an open market. Due to recent poor market performance (characterized by widen bid-ask spread and low trading volume), SF flow estimated internally. Determine the appropriate classification in the fair value hierarchy for 6. HM Corporation issued to certain employees 1 million shares in stock option awards on 1/1/2014 $15 million, percentage vested = 50%. If CNI-315 million, percentage vested: 100% HM believes the market price used as the security's fair value is no longer reliable. SF therefore changed the valuation approach to income approach and applied inputs such as the future cash the security and provide support for your conclusion. (12pts) The employees will vest in different numbers of options depending on the cumulative net income (CNI) over the next 5 years. If CN! $10 million, percentage vested-25%, If $10 million CNIExplanation / Answer
1. The company XYZ has to consider both the new company brand cell phone and the prepaid card as a single unit as it is selling it as one unit to the customer at the time of purchase. The additional prepaid cards should be logged as separate entities for accounting.
More specifically, both the phone and the prepaid card are deliverables but when clubbed as a single unit for purchase the generation of revenue is also combined for accounting practices. Inother words, the customer cannot buy the phone only, it has to be bought as a package.
2. Start up cost is defined as any expense that rises during the of setting up a new business. Many different start up costs are associated with different types of businesses and some are ususally generic. Examples for start up costs include equipment set up and supplies, License fees, technological expenses, etc
Defferred costs are costs that are already incurred but donot have to be paid out till the reporting period and it appears as an asset on the balance sheet.Example may be Insurance cost, rent cost, lease cost, etc where the cot appears as an asset on the balance sheet.
3.Asset retirment obligation means that when a fixed (long lived) asset gets retired there is a liability associated with it which is legally bound which states that the asset be returned to its previous state. There are many methods to determine the liability of the ARO and is present value and some of these include discount rating, probability distribution, etc.he need for a standard practice across businesses has required many accounting principles to be bought into laws.In this regard, capitalizing ARO's rather than expensing them at the time of their retirment allows for a smoother pattern of reported incomes for businesses and is easier for the business to show that it is in compliance with the regulations. But in some conditions expensing the ARO would be better. Now consider that the company is a start up and wants to attract more shareholders, when it shows a higher cash flow from operations its investors are also happy about the health of the company. On the other hand, a well established company may expense off its fixed assets and this might reflect on the asset turnover ratio which will show up as higher, which is avantageous to the company.
So , both capitalizing or expensing off on ARO's should be a well thought out decision for any company as it reflects ultimately on its balance sheets for the investors and other stakeholders to see.
4.a. Anti-abuse clause is a new clause that cordones companies from avoiding taxes or aggressive tax planning by corporate groups in such a way that the government can tackle non-genuine arrangements between companies that have come up to take tax advantage without reflecting economic reality. According to the European commission tere are several ways that artificial or non genuine arrangements can be recognised and these include
In this scenario,Comapny C has shown a loss of 60 Million, both Company A and B have 50% vote though their investment into the company is in the ratio 60:40,looking at this information, in my opinion, if the Company A was situated elsewhere and Company B was situated in any state of EU,and Company C was started in either the same state as Company B or in any other state of EU , then the Antiabuse clause will be applicable for this case.
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