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In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU clarifies the guidance related to an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity-classified after modification or exchange. The amendments in the ASU are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects early adoption in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period.
If the modification or exchange of a freestanding equity-classified written call option is not within the scope of other guidance, a reporting entity shall apply the guidance in ASC 815-40-35-16 through ASC 815-40-35-18. Under this guidance, a reporting entity should recognize the effect of a modification or an exchange (as calculated below) in the same manner as if cash had been paid as consideration.
Modifications or exchanges that are not related to debt or equity financings, compensation for goods or services, or other exchange transactions within the scope of other guidance should be recognized as a dividend consistent with ASC 815-40-35-17(d). The dividend amount is measured as the excess, if any, of the fair value of the modified or exchanged instrument over the fair value of that instrument immediately before it is modified or exchanged in accordance with ASC 815-40-35-16. A reporting entity should deduct the effect of the modification or exchange (i.e., the dividend) in computing income available to common stockholders for basic earnings per share in accordance with ASC 260-10-45-15. See ASC 815-40-55-51 for an example of a warrant modification recognized as a dividend.

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