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Classification |
Accounting for stock issuance costs |
Permanent equity |
Issuance costs are recorded as a reduction of the share balance/additional paid-in capital |
Mezzanine equity |
Issuance costs are recorded as a reduction of the share balance |
Liability |
Issuance costs are treated in the same manner as debt issuance costs. See FG 1.2.2 for a discussion of debt issuance costs |
Excerpt from ASC 480-10-35-3
Income before tax |
$100,000 |
Income tax expense |
(35,000) |
Consolidated net income |
65,000 |
Net income attributable to the noncontrolling interest |
(35,000) |
Net income attributable to parent |
$30,000 |
Redemption provision |
Accounting for preferred stock discount |
Redeemable (puttable) at the investor’s option |
The issuer has a policy choice to either (1) adjust the carrying amount of the preferred stock to its redemption amount at each balance sheet date, or (2) recognize any discount over the period from issuance to the date the preferred stock can first be redeemed. However, the carrying amount should not be adjusted to an amount that is less than the initial carrying amount. For this reason, a premium to the redemption amount should not be amortized. |
Callable by the issuer |
The carrying amount of the preferred stock should not be adjusted (assuming the preferred stock investor does not control the board of the company). Any premium (or discount) to the redemption amount should be recognized as a dividend upon redemption. |
Redeemable (automatically or at the investor’s option) upon a change in control |
The carrying amount of the preferred stock should not be adjusted until it is probable that the redemption event (a change in control) will occur. Once the occurrence of the redemption event is probable, the issuer has a policy choice to either (1) adjust the carrying amount of the preferred stock to its redemption amount at each balance sheet date, or (2) recognize any discount over the period from the date the redemption event is probable of occurring to the date the preferred stock can first be redeemed (which is likely to be a short period of time). |
Redeemable (automatically or at the investor’s option) upon a delisting of the issuer’s common stock |
The preferred stock carrying amount should not be adjusted until it is probable that the redemption event (delisting) will occur. Once the occurrence of the redemption event is probable, the issuer has a policy choice to either (1) adjust the carrying amount of the preferred stock to its redemption amount at each balance sheet date, or (2) recognize any discount over the period from the date the redemption event is probable of occurring to the date the preferred stock can first be redeemed (which is likely to be a short period of time). |
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