Intermediate Financial Accounting-2
– Current Liabilities
– Long-term Liabilities
– Footnotes/Disclosures regarding liabilities
– Stock Capital/Dividend Policy
– Dilutive Securities/Computing Earning per share
– Taxable Income vs Financial Income / Temporary vs permanent differences / Tax payables vs tax expense / Deferred tax assets and liabilities / Implication of the new tax laws
– Element of Pension expense / Computing Pension expense / Recognition of net funded status / Gains and losses
This assignment has two choices. You may pick any one.
There are two parts and is worth a total of 40 points in each option. In Part a, you will evaluate a transaction while evaluating the impact of GAAP rules and in Part b, you will describe the accounting using real life financial statements.
You may utilize your textbook and any class resources to complete the assignment but you are expected to complete this assignment individual.
Below are two alternative topics for the graduate student project. Choose a topic from the choices below and follow the guidelines with respect to the page limit. The 10 – Ks that you need are also on D2L. You may add appendices to your report over and above the prescribed page limit. The report will be evaluated based on facts, the quality of the analysis and quality of writing and support of conclusion.
I- Topic Choices
1. Convertible/ Straight Debt
(a) ABC Corp. is a biotech company with several lucrative patents and they are working on developing new drugs for diabetes. ABC Corp. has short-term cash flow problems and wishes to raise financing using debt. Their investment banker suggests that they should be able to raise $800,000 for a 7-year term and would like ABC to decide whether they wish to issue convertible bonds or non-convertible bonds. In a 2-3-page paper, please evaluate these two taking into account the likely differences in cost of borrowing and the impact on EPS for shareholders and make a recommendation to ABC Corp.?
(b) Using the 10-K of Gilead Sciences, discuss the effects of their convertible debt on their cost of borrowing and their diluted EPS. Refer to numbers in their debt (footnote 11) and EPS (footnote 15) footnotes to explain this in 1 page or less.
2. Stock Options/Restricted Stock/ Bonus
(a) XYZ Inc. currently grants bonus to its senior executives based on specific performance benchmarks and wishes to provide some long-term equity-based incentive compensation for its senior managers and is considering adopting a plan for either stock options or restricted stock. However, given all the recent bad press about excessive compensation for top management and the link between equity-based compensation and excessive risk-taking by managers, they are seeking your advice on introducing a new equity linked incentive compensation scheme. Please provide a 2-3-page recommendation to XYZ Inc evaluating the choice between options and restricted stock and their impact on managerial incentives and current shareholders.
(b) Using the 10-K of Trulia Inc, discuss the reasons for the shift away from stock options to restricted stock and restricted stock units. In addition, please discuss whether this shift is common amongst companies today. Refer to page 107 of the 10-K (page 110 in pdf) for reference.
Evaluation Criteria and Grading Rubric
Your submission will be scored based on the grading rubric below. Points are primarily associated with accuracy and completeness of the information. While I appreciate efforts to make the financial statements well-formatted, hand-written work is acceptable.
Criteria Unsatisfactory Marginal Good Outstanding
Part A 0 Points 6 Points 15 Points 20 Points
(20 Analysis is poor and Analysis is partly correct Analysis is correct but Analysis is correct and
points writing is unclear and writing needs work incomplete and writing complete and writing is
possible) is Reasonably good clear and professional
Criteria Unsatisfactory Marginal Good Outstanding
Part B 0 Points 6 Points 15 Points 20 Points
(20 Discussion is poor and Discussion is 50% correct Discussion 75% correct Discussion 90% correct
points writing is unclear and writing needs work and writing is reasonably and writing is clear and
possible) good professional.
II- Additional Presentations
Finding articles from current business press that relate to the topics covered any of the subjects listed above. In your presentation, it is expected from you to describe what you learned by reading the article and how it relates to our teachings in the class. There will be two articles to be submitted.
These two presentations will be awarded based on:
• the quality of the post (how well you explain the relevance of the article to the course)
• evidence of critical thinking in the discussion
• credibility of the source of the article
• introduction of new information not already covered in the course material (or already posted by another student for extra credit).