Public Company Accounting and Finance Edition 2.2 Steven M. Bragg
Chapter 1 The Public Company Environment... 1 Learning Objectives... 1 Introduction... 1 Public Company Accounting... 1 Generally Accepted Accounting Principles... 2 Public Company Finance... 3 The Securities and Exchange Commission... 4 The Issuer and Registrant Concepts... 5 The Decline in Public Companies... 5 Chapter Summary... 6 Review Questions... 8 Review Answers... 9 Chapter 2 Earnings per Share Reporting... 11 Learning Objectives... 11 Introduction... 11 Basic Earnings per Share... 11 Diluted Earnings per Share... 12 Disclosure of Earnings per Share... 15 Chapter Summary... 16 Review Questions... 17 Review Answers... 18 Chapter 3 Segment Reporting... 19 Learning Objectives... 19 Introduction... 19 Overview of Segment Reporting... 19 Segment Disclosure... 21 Products, Services, and Customer Disclosure... 23 Geographic Area Disclosure... 23 Chapter Summary... 24 Review Questions... 25 Review Answers... 26 Chapter 4 Interim Reporting... 27 Learning Objectives... 27 Introduction... 27 Overview of Interim Reporting... 27 General Interim Reporting Rule... 27 Variations from the Interim Reporting Rule... 28 Changes in Accounting Principle in Interim Periods... 29 Changes in Accounting Estimate in Interim Periods... 29 Error Correction in Interim Periods... 29 Adjustments to Prior Interim Periods... 30 Gross Profit Method... 30 The Integral View... 31 The Discrete View... 32 Comparison of the Integral and Discrete Views... 32 Disclosures for Interim Reporting... 32 Chapter Summary... 34 Review Questions... 35 Review Answers... 36 Chapter 5 Stock Issuances Accounting... 37 Learning Objectives... 37
Introduction... 37 The Sale of Stock... 37 Dividend Payments... 37 Stock Dividends and Stock Splits... 38 Stock Dividend... 38 Stock Split... 39 Equity-Based Payments to Nonemployees... 39 Overview of Stock Compensation... 40 The Volatility Concept... 44 Fair Value Calculation Alternatives... 44 Awards Classified as Equity... 45 Award Measurement Problems... 45 Contingent Features... 45 Award Modifications... 45 Awards Classified as Liabilities... 46 Employee Share Purchase Plans... 47 Equity Disclosures... 48 Rights and Privileges... 48 Preferred Stock... 48 Contingently Convertible Securities... 48 Redeemable Securities... 49 Changes in Shareholders Equity... 49 Equity-Based Payments to Nonemployees... 49 Stock-Based Compensation Disclosures... 49 Chapter Summary... 51 Review Questions... 53 Review Answers... 54 Chapter 6 Debt Accounting... 55 Learning Objectives... 55 Introduction... 55 Debt with Conversion and Other Options... 55 Debt Instruments with Detachable Warrants... 55 Convertible Securities... 55 Beneficial Conversion Features... 57 Interest Forfeiture... 58 Induced Conversions... 59 Conversion by Exercise of Call Option... 59 Convertible Instruments Issued to Nonemployees as Payment... 59 Contingent Conversion Option... 59 Own-Share Lending Arrangements... 59 Own-Share Lending Arrangements (EPS Calculations)... 60 Overview of Imputed Interest... 60 Debt Disclosures... 62 Long-Term Obligations... 62 Short-Term Obligations to be Refinanced... 62 Chapter Summary... 63 Review Questions... 64 Review Answers... 65 Chapter 7 Staff Accounting Bulletins... 67 Learning Objectives... 67 Introduction... 67 Financial Statement Topics... 67 Overhead Allocations... 67 Pro Forma Financial Statements... 68 Materiality... 68 ii
Debt Issuance Costs... 71 Redeemable Preferred Stock... 71 Equity Accounting Topics... 72 Subordinated Debt... 72 S Corporations... 72 Change in Capital Structure... 72 Receivables from the Sale of Stock... 72 Limited Partnerships... 73 Notes and Other Receivables from Affiliates... 73 Miscellaneous Accounting Topics... 73 Expenses of Offering... 73 Gain or Loss from Disposition of Equipment... 74 Accounting Changes Not Retroactively Applied Due to Immateriality... 74 New Basis of Accounting Required in Certain Circumstances... 74 Restructuring Charges... 75 Impairments... 75 Revenue Recognition Topics... 75 Chapter Summary... 76 Review Questions... 77 Review Answers... 78 Chapter 8 Annual and Quarterly Reporting... 79 Learning Objectives... 79 Introduction... 79 The Form 10-K... 79 Item 1. Business... 81 Item 1A. Risk Factors... 82 Item 1B. Unresolved Staff Comments... 84 Item 2. Properties... 84 Item 3. Legal Proceedings... 85 Item 4. Mine Safety Disclosures... 86 Item 5. Market for Company Stock... 86 Item 6. Selected Financial Data... 88 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operation... 89 Item 7A. Quantitative and Qualitative Disclosures about Market Risk... 91 Item 8. Financial Statements and Supplementary Data... 93 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 93 Item 9A. Controls and Procedures... 94 Item 10. Directors, Executive Officers and Corporate Governance... 95 Item 11. Executive Compensation... 96 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters... 102 Item 13. Certain Relationships and Related Transactions, and Director Independence... 103 Item 14. Principal Accountant Fees and Services... 104 The Form 10-Q... 104 Information to be Incorporated by Reference... 106 Chapter Summary... 106 Review Questions... 107 Review Answers... 108 Chapter 9 Form 8-K Reporting... 109 Learning Objectives... 109 Introduction... 109 The Form 8-K... 109 Chapter Summary... 117 Review Questions... 118 Review Answers... 119 iii
Chapter 10 Insider Securities Reporting... 121 Learning Objectives... 121 Introduction... 121 Forms 3, 4, and 5... 121 SEC Filing Codes... 122 Related Topics... 123 Chapter Summary... 123 Review Questions... 124 Review Answers... 125 Chapter 11 Non-GAAP Reporting... 127 Learning Objectives... 127 Introduction... 127 The Disclosure of Non-GAAP Information... 127 Practical Application of Non-GAAP Financial Measures... 128 Non-GAAP Financial Measure Policies and Procedures... 129 Non-GAAP Financial Measure Policies... 129 Non-GAAP Financial Measure Procedures... 130 Chapter Summary... 131 Review Questions... 132 Review Answers... 133 Chapter 12 Fedwire Payments... 135 Learning Objectives... 135 Introduction... 135 Fedwire... 135 Fedwire Payment Instructions... 136 Check Payments... 137 Chapter Summary... 137 Review Questions... 138 Review Answers... 139 Chapter 13 The Initial Public Offering... 141 Learning Objectives... 141 Introduction... 141 Reasons for and Against an IPO... 141 Preparation for the IPO... 142 The Initial Public Offering... 144 Blue Sky Laws... 147 Chapter Summary... 148 Review Questions... 149 Review Answers... 150 Chapter 14 The Reverse Merger... 151 Learning Objectives... 151 Introduction... 151 The Reverse Merger Concept... 151 Advantages and Disadvantages of the Reverse Merger... 152 The Price of a Shell... 153 Shell Due Diligence... 154 Trading Volume... 155 Chapter Summary... 156 Review Questions... 157 Review Answers... 158 Chapter 15 Registration Statements... 159 Learning Objectives... 159 Introduction... 159 iv
Form S-1... 159 Form S-3... 161 Form S-8... 161 Exhibits to Registration Filings... 162 Shelf Registration... 164 Registration Statement Effectiveness... 164 Chapter Summary... 165 Review Questions... 166 Review Answers... 167 Chapter 16 Regulation A Stock Sales... 169 Learning Objectives... 169 Introduction... 169 Regulation A Stock Sales... 169 Solicitations of Interest... 170 Form 1-A... 170 Chapter Summary... 171 Review Questions... 172 Review Answers... 173 Chapter 17 Sale of Unregistered Securities Regulation D... 175 Learning Objectives... 175 Introduction... 175 Regulation D Stock Sales... 175 The Form D Filing... 177 The Accredited Investor... 177 Private Investments in Public Equity... 178 Chapter Summary... 179 Review Questions... 180 Review Answers... 181 Chapter 18 The Jumpstart Our Business Startups Act... 183 Learning Objectives... 183 Introduction... 183 Provisions of the JOBS Act... 183 Title I Reopening American Capital Markets to Emerging Growth Companies... 183 Title II Access to Capital for Job Creators... 184 Title III Crowdfunding... 184 Title IV Small Company Capital Formation... 186 Title V Private Company Flexibility and Growth... 186 Chapter Summary... 186 Review Questions... 187 Review Answers... 188 Chapter 19 Sale of Unregistered Securities Rule 144... 189 Learning Objectives... 189 Introduction... 189 Rule 144 Stock Sales... 189 Rule 144 Administrative Procedure... 190 Chapter Summary... 191 Review Questions... 192 Review Answers... 193 Chapter 20 Rule 10b5-1 Stock Sales... 195 Learning Objectives... 195 Introduction... 195 Rule 10b5-1 Stock Sales... 195 Rule 10b5-1 Administrative Procedure... 195 v
Chapter Summary... 197 Review Questions... 198 Review Answers... 199 Chapter 21 Closing the Books... 201 Learning Objectives... 201 Introduction... 201 Basic Steps for Closing the Books... 201 Customer Billings... 201 Accounts Payable... 201 Fixed Assets... 201 Inventory... 202 Journal Entries... 202 Balance Sheet Reconciliations... 202 Consolidate Results... 203 Error Checking... 203 Preparation of the Financial Statements Public Company... 203 Final Tasks Period-End... 204 Final Tasks Year-End... 204 The Public Company Closing Process... 204 The Form 10-Q Approval... 206 The Form 10-K Approval... 206 Chapter Summary... 206 Review Questions... 208 Review Answers... 209 Chapter 22 Accounting and Finance Controls... 211 Learning Objectives... 211 Introduction... 211 Preventive and Detective Controls... 211 General Controls for Public Companies... 211 Basic Financial Statement Controls... 212 Controls for Form 8-K Reporting... 214 Controls for Forms 3, 4, and 5 Filings... 214 Controls for Non-GAAP Financial Measures... 215 Controls for Regulation A Stock Sales... 215 Controls for Regulation D Stock Sales... 216 Controls for Rule 144... 217 Chapter Summary... 217 Review Questions... 218 Review Answers... 219 Glossary... 221 Index... 225 vi