Acct 712 Case Essay

313 Words2 Pages
Case: Case 04-8 Drug King Analysis: Conditions already exist in case context that eliminate some steps normally needed in our analysis are: “The transferee, InsureAll, is a substantive third party” “Outside counsel for Drug King concludes that both transfers isolate the transferred assets” In order for transfer of financial assets to meet sale accounting, the following two conditions have to be met along with the (ASC 860-10-40-5(a)) isolation of transferred assets: (ASC 860-10-40-5 (b) (c)) * Transferee's rights to pledge or exchange * Effective control Example 1: Transfer of investment in Series A: Financing Reason: A call option or other right conveys more than a trivial benefit at fixed price that precludes sale accounting. (ASC 860-10-40-5-(c)-2 and ASC 860-10-40-28-(a) Transfer of investment in Series B: Financing Reason: The attached freestanding call option constrains transferee’s rights to pledge or exchange because the Series B is not readily (ASC 860-10-40-5(b) (2) and ASC 860-10-40-17 (c) (3)) Example 2: Transfer of investment in Debt Securities: Financing Reason: The conditional call option still qualified as a call option or other right conveys more than a trivial benefit at fixed price that precludes sale accounting. (ASC 860-10-40-5-(c)-2 and ASC 860-10-40-28-(a) Example 3: Transfer of Trade receivable: Sale Reason: Both conditions are met. the put option only represent an obligation to reacquire, to apply ASC 860-10-40-5-(c)-1, both right and obligation have to exist for an arrangement. Transfer of Credit card receivable: Financing Reason: Effective control condition is not met The put option, the exercise price of the option appears to be sufficiently favorable such that it is probable at inception that it will be exercised. (ASC
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