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Spring 2016 ACG 4101 Extra Credit Essay By completing the essay on the following topic, you can earn up to 2% extra credit. You can complete the...

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ACG4101 Spring16 Extra Credit Assignment(2).docx

Spring 2016 ACG 4101 Extra Credit Essay By completing the essay on the following topic, you can earn up to 2% extra credit. For
example, if your grade from all class assignments and exams is 80% and receive full extra
credit of 2%, your final grade will be 82% and your letter grade will be determined based
on 82%.
You can complete the essay by answering the following questions. The essay will be graded
out of 100 points. Grading will be based on the completeness and clarity of your write-up.
Note that even if you complete the essay, you may not receive any credit if you do it poorly.
1.
2.
3.
4. Read ASU (Accounting Standard Update) 2014-08.
Summarize key points of this update. (30 points)
Why did FASB issue this update? (20 points)
What is the likely effect of this update on the frequency of reporting discontinued
operations? (10 points)
5. What are the expected benefits of this update for financial statement preparers? (10
points)
6. Refer to earnings quality section (p.177) of Chapter 4 of the textbook. How does the
textbook define earnings quality? How would you think this update affect earnings
quality of income from continuing operations and bottom line net income? (30 points)
Additional Notes:
(1) No more than double-spaced 5 pages (1″ margin for all sides) excluding cover page,
appendix and reference list
(2) Clearly write last name, first name and ID on cover page
(3) 12-point Time New Roman
(4) Due Sunday (May 1st) via Blackboard Messages.
(5) If you need to provide additional analyses or insights that are not relevant to the
essay questions above, provide them in the appendix.
(6) You should refer to and/or read other relevant materials and list them in the
reference list following your essay
(7) The sequence of your essay should be:
1. Cover page
2. Main essay
3. Appendix
4. Reference list
(8) You should prepare the essay on your own without taking help from any other
fellow students or another people.

ASU 2014-08.pdf

No. 2014-08
April 2014 Presentation of Financial Statements (Topic 205)
and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity An Amendment of the FASB Accounting Standards Codification® The FASB Accounting Standards Codification® is the source of authoritative
generally accepted accounting principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities. An Accounting Standards Update is not
authoritative; rather, it is a document that communicates how the Accounting
Standards Codification is being amended. It also provides other information to
help a user of GAAP understand how and why GAAP is changing and when the
changes will be effective. For additional copies of this Accounting Standards Update and information on
applicable prices and discount rates contact:
Order Department
Financial Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116
Please ask for our Product Code No. ASU2014-08.
FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published quarterly by
the Financial Accounting Foundation. Periodicals postage paid at Norwalk, CT
and at additional mailing offices. The full subscription rate is $242 per year.
POSTMASTER: Send address changes to Financial Accounting Standards
Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. | No. 397
Copyright © 2014 by Financial Accounting Foundation. All rights reserved.
Content copyrighted by Financial Accounting Foundation may not be
reproduced, stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the Financial Accounting Foundation.
Financial Accounting Foundation claims no copyright in any portion hereof
that constitutes a work of the United States Government. Accounting Standards Update No. 2014-08
April 2014 Presentation of Financial Statements (Topic 205)
and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity An Amendment of the FASB Accounting Standards Codification® Financial Accounting Standards Board Accounting Standards Update 2014-08
Presentation of Financial Statements (Topic 205) and
Property, Plant, and Equipment (Topic 360)
Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity
April 2014
CONTENTS
Page
Numbers
Summary ...........................................................................................................1–7
®
Amendments to the FASB Accounting Standards Codification .....................9–52
Background Information and Basis for Conclusions ......................................53–64
Amendments to the XBRL Taxonomy .................................................................65 Summary
Why Is the FASB Issuing This Accounting Standards
Update (Update)?
Some stakeholders told the Board that too many disposals of small groups of
assets that are recurring in nature qualify for discontinued operations
presentation under Subtopic 205-20, Presentation of Financial Statements—
Discontinued Operations. That results in financial statements that are less
decision useful for users. Other stakeholders noted that some of the guidance on
reporting discontinued operations results in higher costs for preparers because it
can be complex and difficult to apply. The amendments in this Update address
those issues by changing the criteria for reporting discontinued operations and
enhancing convergence of the FASB’s and the International Accounting Standard
Board’s (IASB) reporting requirements for discontinued operations. Who Is Affected by the Amendments in This Update?
The amendments in this Update affect an entity that has either of the following:
1.
2. A component of an entity that either is disposed of or meets the criteria
in paragraph 205-20-45-1E to be classified as held for sale
A business or nonprofit activity that, on acquisition, meets the criteria in
paragraph 205-20-45-1E to be classified as held for sale. What Are the Main Provisions?
The amendments in this Update change the requirements for reporting
discontinued operations in Subtopic 205-20. A discontinued operation may
include a component of an entity or a group of components of an entity, or a
business or nonprofit activity.
A disposal of a component of an entity or a group of components of an entity is
required to be reported in discontinued operations if the disposal represents a
strategic shift that has (or will have) a major effect on an entity’s operations and
financial results when any of the following occurs:
1.
2. The component of an entity or group of components of an entity meets
the criteria in paragraph 205-20-45-1E to be classified as held for sale.
The component of an entity or group of components of an entity is
disposed of by sale. 1 3. The component of an entity or group of components of an entity is
disposed of other than by sale (for example, by abandonment or in a
distribution to owners in a spinoff). Examples of a strategic shift that has (or will have) a major effect on an entity’s
operations and financial results could include a disposal of a major geographical
area, a major line of business, a major equity method investment, or other major
parts of an entity (see paragraphs 205-20-55-83 through 55-101 for examples).
A business or nonprofit activity that, on acquisition, meets the criteria in
paragraph 205-20-45-1E to be classified as held for sale also is a discontinued
operation.
A component of an entity comprises operations and cash flows that can be
clearly distinguished, operationally and for financial reporting purposes, from the
rest of the entity. A component of an entity may be a reportable segment or an
operating segment, a reporting unit, a subsidiary, or an asset group.
A business is an integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return in the form of
dividends, lower costs, or other economic benefits directly to investors or other
owners, members, or participants.
A nonprofit activity is an integrated set of activities and assets that is capable of
being conducted and managed for the purpose of providing benefits, other than
goods or services at a profit or profit equivalent, as a fulfillment of an entity’s
purpose or mission (for example, goods or services to beneficiaries, customers,
or members). As with a not-for-profit entity, a nonprofit activity possesses
characteristics that distinguish it from a business or a for-profit entity.
The amendments in this Update require an entity to present, for each
comparative period, the assets and liabilities of a disposal group that includes a
discontinued operation separately in the asset and liability sections, respectively,
of the statement of financial position.
The amendments in this Update
discontinued operations, including:
1. 2. 2 require additional disclosures about The major classes of line items constituting the pretax profit or loss (or
change in net assets for a not-for-profit entity) of the discontinued
operation for the periods in which the results of operations of the
discontinued operation are presented in the statement where net
income is reported (or statement of activities for a not-for-profit entity).
Either of the following:
a. The total operating and investing cash flows of the discontinued
operation for the periods in which the results of operations of the
discontinued operation are reported in the statement where net
income is reported (or statement of activities for a not-for-profit
entity) b. 3. 4. 5. The depreciation, amortization, capital expenditures, and significant
operating and investing noncash items of the discontinued
operation for the periods in which the results of operations of the
discontinued operation are presented in the statement where net
income is reported (or statement of activities for a not-for-profit
entity).
If the discontinued operation includes a noncontrolling interest, the
pretax profit or loss (or change in net assets for a not-for-profit entity)
attributable to the parent for the periods in which the results of
operations of the discontinued operation are presented in the statement
where net income is reported (or statement of activities for a not-forprofit entity).
A reconciliation of the major classes of assets and liabilities of the
discontinued operation classified as held for sale that are disclosed in
the notes to financial statements to total assets and total liabilities of the
disposal group classified as held for sale that are presented separately
on the face of the statement of financial position for the initial period in
which the disposal group is classified as held for sale and for all prior
periods presented in the statement of financial position.
A reconciliation of the major classes of line items constituting the pretax
profit or loss (or change in net assets for a not-for-profit entity) of the
discontinued operation that are disclosed in the notes to financial
statements to the after-tax profit or loss of the discontinued operation
that is presented on the face of the statement where net income is
reported (or statement of activities for a not-for-profit entity) for the
periods in which the results of operations of the discontinued operation
are presented in the statement where net income is reported (or
statement of activities for a not-for-profit entity). The amendments in this Update require a public business entity and a not-forprofit entity that has issued, or is a conduit bond obligor for, securities that are
traded, listed, or quoted on an exchange or an over-the-counter market to
provide disclosures about a disposal of an individually significant component of
an entity that does not qualify for discontinued operations presentation in the
financial statements, including:
1. 2. The pretax profit or loss (or change in net assets for a not-for-profit
entity) attributable to the component of an entity for the period in which it
is disposed of or is classified as held for sale and for all prior periods
that are presented in the statement where net income is reported (or
statement of activities for a not-for-profit entity)
If the component of an entity includes a noncontrolling interest, the
pretax profit or loss (or change in net assets for a not-for-profit entity)
attributable to the parent for the period in which it is disposed of or is
classified as held for sale and for all prior periods that are presented in 3 the statement where net income is reported (or statement of activities
for a not-for-profit entity).
The amendments in this Update require all other entities to provide disclosures
about a disposal of an individually significant component of an entity that does
not qualify for discontinued operations presentation in the financial statements,
including:
1.
2. The pretax profit or loss (or change in net assets for a not-for-profit
entity) attributable to the component of an entity for the period in which it
is disposed of or is classified as held for sale
If the component of an entity includes a noncontrolling interest, the
pretax profit or loss (or change in net assets for a not-for-profit entity)
attributable to the parent for the period in which it is disposed of or is
classified as held for sale. The amendments in this Update expand the disclosures about an entity’s
significant continuing involvement with a discontinued operation, including:
1.
2. The amount of any cash inflows (outflows) from (to) the discontinued
operation following its disposal
Information about a discontinued operation in which an entity retains an
equity method investment after the disposal transaction. Those disclosures are required until the results of operations of the discontinued
operation in which an entity retains significant continuing involvement are no
longer presented separately as discontinued operations in the statement where
net income is reported (or statement of activities for a not-for-profit entity). How Do the Main Provisions Differ from Current U.S.
Generally Accepted Accounting Principles (GAAP) and
Why Are They an Improvement?
Under the amendments in this Update, the definition of discontinued operation
differs from current U.S. GAAP as follows:
1. 2. 4 Only those disposals of components of an entity that represent a
strategic shift that has (or will have) a major effect on an entity’s
operations and financial results will be reported as discontinued
operations in the financial statements. Currently, a component of an
entity that is a reportable segment, an operating segment, a reporting
unit, a subsidiary, or an asset group is eligible for discontinued
operations presentation.
The following conditions in the current definition of discontinued
operation have been removed: a. 3. 4. The operations and cash flows of the component have been (or will
be) eliminated from the ongoing operations of the entity as a result
of the disposal transaction.
b. The entity will not have any significant continuing involvement in the
operations of the component after the disposal transaction.
A business or nonprofit activity that, on acquisition, meets the criteria to
be classified as held for sale is reported in discontinued operations.
Currently, U.S. GAAP does not include a business or nonprofit activity in
the definition of discontinued operation.
A disposal of an equity method investment that meets the definition of
discontinued operation is reported in discontinued operations. Currently,
disposals of equity method investments are not in the scope of Subtopic
205-20. The amendments in this Update improve the definition of discontinued operations
by limiting discontinued operations reporting to disposals of components of an
entity that represent strategic shifts that have (or will have) a major effect on an
entity’s operations and financial results. Under current U.S. GAAP, many
disposals, some of which may be routine in nature and not a change in an
entity’s strategy, are reported in discontinued operations.
The amendments in this Update require expanded disclosures for discontinued
operations. The Board concluded that those disclosures should provide users of
financial statements with more information about the assets, liabilities, revenues,
and expenses of discontinued operations.
The amendments in this Update also require an entity to disclose the pretax profit
or loss (or change in net assets for a not-for-profit entity) of an individually
significant component of an entity that does not qualify for discontinued
operations reporting. The Board concluded that this disclosure should provide
users with information about the financial effects of significant disposals that do
not qualify for discontinued operations reporting.
The amendments in this Update include several changes to the Accounting
Standards Codification to improve the organization and readability of Subtopic
205-20 and Subtopic 360-10, Property, Plant, and Equipment—Overall. For
example, the disclosures required by Subtopic 205-20 are organized by the
nature of the discontinued operation. Additionally, flowcharts were added to
Subtopics 205-20 and 360-10 to help stakeholders implement the disclosure
requirements. When Will the Amendments Be Effective?
A public business entity and a not-for-profit entity that has issued, or is a conduit
bond obligor for, securities that are traded, listed, or quoted on an exchange or
an over-the-counter market should apply the amendments in this Update
prospectively to both of the following: 5 1.
2. All disposals (or classifications as held for sale) of components of an
entity that occur within annual periods beginning on or after December
15, 2014, and interim periods within those years
All businesses or nonprofit activities that, on acquisition, are classified
as held for sale that occur within annual periods beginning on or after
December 15, 2014, and interim periods within those years. All other entities should apply the amendments in this Update prospectively to
both of the following:
1. 2. All disposals (or classifications as held for sale) of components of an
entity that occur within annual periods beginning on or after December
15, 2014, and interim periods within annual periods beginning on or
after December 15, 2015
All businesses or nonprofit activities that, on acquisition, are classified
as held for sale that occur within annual periods beginning on or after
December 15, 2014, and interim periods within annual periods
beginning on or after December 15, 2015. An entity should not apply the amendments in this Update to a component of an
entity, or a business or nonprofit activity, that is classified as held for sale before
the effective date even if the component of an entity, or business or nonprofit
activity, is disposed of after the effective date.
Early adoption is permitted, but only for disposals (or classifications as held for
sale) that have not been reported in financial statements previously issued or
available for issuance. How Do the Provisions Compare with International
Financial Reporting Standards (IFRS)?
The amendments in this Update to the definition of discontinued operation make
that definition similar to the definition of discontinued operation in IFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations. Part of the definition
of discontinued operation in this Update is based on the guidance in IFRS 5
indicating that a discontinued operation should represent a separate major line of
business or geographical area of operations.
While perhaps implicit in IFRS 5, the amendments in this Update specifically
indicate that a discontinued operation arises from a disposal of a component of
an entity or a group of components of an entity that results in a strategic shift that
has a major effect on an entity’s operations and financial results. Thus, under the
amendments, the significance of the disposal of the line of business or
geographical area of operations will determine whether the disposal qualifies for
discontinued operations presentation. 6 Under the amendments in this Update, a business or nonprofit activity that, on
acquisition, meets the criteria in paragraph 205-20-45-1E to be classified as held
for sale is a discontinued operation. This guidance is similar to IFRS 5’s
requirement that a subsidiary that, on acquisition, is classified as held for sale
should be reported in discontinued operations.
The amendments in this Update also include several examples that provide
further guidance on how to interpret the definition of discontinued operation;
IFRS does not contain similar examples.
The amendments in this Update require certain disclosures in the notes to
financial statements for individually significant components of an entity that do
not qualify for discontinued operations reporting. Those disclosures are not
required under IFRS 5. 7 Amendments to the
FASB Accounting Standards Codification®
Introduction
1.
The Accounting Standards Codification is amended as described in
paragraphs 2–37. In some cases, to put the change in context, not only are the
amended paragraphs shown but also the preceding and following paragraphs.
Terms from the Master Glossary are in bold type. Added text is underlined, and
deleted text is struck out. Amendments to Master Glossary
2.
Supersede the following Master Glossary terms, with a link to transition
paragraph 205-20-65-1, as follows:
Commodity
Commodity means products whose units are interchangeable, are traded on an
active market where customers are not readily identifiable, and are immediately
marketable at quoted prices.
Continuation of Activities
Continuation of activities means the continuation of any revenue-producing or
cost-generating activity through active involvement with the disposed component.
Continuing Cash Flows
Continuing cash flows are cash inflows or outflows that are generated by the
ongoing entity and are associated with activities involving a disposed component.
Migration
Migration means the ongoing entity expects to continue to generate revenues
and (or) incur expenses from the sale of similar products or services to specific
customers of the disposed component.
3.
Amend the following Master Glossary term, with a link to transition
paragraph 205-20-65-1, as follows:
Disposal Group
A disposal group for a long-lived asset or assets to be disposed of by sale or
otherwise represents assets to be disposed of together as a group in a single
transaction and liabilities directly associated with those assets that will be 9 transferred in the transaction. A disposal group may include a discontinued
operation along with other assets and liabilities that are not part of the
discontinued operation.
4.
Add the following Master Glossary terms to Subtopics 205-10 and 205-20
as follows:
Business
An integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of dividends, lower
costs, or other economic benefits directly to investors or other owners, members,
or participants. Additional guidance on what a business consists of is presented
in paragraphs 805-10-55-4 through 55-9.
Nonprofit Activity
An integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing benefits, other than goods or services at a
profit or profit equivalent, as a fulfillment of an entity’s purpose or mission (for
example, goods or services to beneficiaries, customers, or members). As with a
not-for-profit entity, a nonprofit activity possesses characteristics that distinguish
it from a business or a for-profit business entity.
5. Add the following Master Glossary terms to Subtopic 205-20 as follows: Firm Purchase Commitment
A firm purchase commitment is an agreement with an unrelated party, binding on
both parties and usually legally enforceable, that meets both of the following
conditions:
a.
b. It specifies all significant terms, including the price and timing of the
transaction.
It includes a disincentive for nonperformance that is sufficiently large to
make performance probable. Not-for-Profit Entity
An entity that possesses the following characteristics, in varying degrees, that
distinguish it from a business entity:
a.
b.
c. Contributions of significant amounts of resources from resource
providers who do not expect commensurate or proportionate pecuniary
return
Operating purposes other than to provide goods or services at a profit
Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following:
a. 10 All investor-owned entities b. Entities that provide dividends, lower costs, or other economic benefits
directly and proportionately to their owners, members, or participants,
such as mutual insurance entities, credit unions, farm and rural electric
cooperatives, and employee benefit plans. Probable (second definition)
The future event or events are likely to occur.
Public Business Entity
A public business entity is a business entity meeting any one of the criteria
below. Neither a not-for-profit entity nor an employee benefit plan is a business
entity.
a. b. c. d.
e. It is required by the U.S. Securities and Exchange Commission (SEC) to
file or furnish financial statements, or does file or furnish financial
statements (including voluntary filers), with the SEC (including other
entities whose financial statements or financial information are required
to be or are included in a filing).
It is required by the Securities Exchange Act of 1934 (the Act), as
amended, or rules or regulations promulgated under the Act, to file or
furnish financial statements with a regulatory agency other than the
SEC.
It is required to file or furnish financial statements with a foreign or
domestic regulatory agency in preparation for the sale of or for purposes
of issuing securities that are not subject to contractual restrictions on
transfer.
It has issued, or is a conduit bond obligor for, securities that are traded,
listed, or quoted on an exchange or an over-the-counter market.
It has one or more securities that are not subject to contractual
restrictions on transfer, and it is required by law, contract, or regulation
to prepare U.S. GAAP financial statements (including footnotes) and
make them publicly available on a periodic basis (for example, interim or
annual periods). An entity must meet both of these conditions to meet
this criterion. An entity may meet the definition of a public business entity solely because its
financial statements or financial information is included in another entity’s filing
with the SEC. In that case, the entity is only a public business entity for purposes
of financial statements that are filed or furnished with the SEC. Amendments to Subtop...

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