Financial Accounting

Employee stock option (ESO) is a compensation plan for employees and executives. The plan comes in the form of a regular call option that allows employees to buy shares at a specific price and date. Employees can evaluate the stock options just like investors do. They hold the right to exercise the option but not […]

Donated capital comes in the form of nonreciprocal transfer of assets to a company. This form of capital is rare with for-profit organizations. However, not-for-profit (NFP) organizations can receive assets and capital donated by individuals and governments. ASC 958-605-25-2 and ASC 845-10-30 combined guide on the accounting treatment of donated capital. What is Donated Capital?

Stock dividends are dividends issued in the form of new shares rather than cash by a company. It dilutes the share price of the company but the market capitalization remains the same. Large stock dividends are when a company issue more than 25% of new shares in proportion to the total value of existing shares.

Stock subscriptions are a process that allows investors and employees of a company to purchase stocks over a long period. Investors can subscribe (buy stocks) for stocks in regular intervals. A company may enter into a formal stock subscription agreement with a corporation. Another option for the company is to offer the subscription directly to

Deferred compensation contracts are arranged for paying employees at a later date. Employers set aside a proportion of deferred liability to compensate employees at retirement. An employer can use different methods to fund deferred compensation contracts. The employees can also participate in a volunteer contribution plan such as an insurance plan to fund their compensation.

A sale-leaseback transaction basically occurs when an owner of an asset sells the asset and immediately leases it back from the buyer. A sale-leaseback option provides a liquidity boost to the company. It also helps a company is managing its debt ratio. These transactions offer several benefits to both parties. The accounting treatment of a

A lease contract can be classified as an operating or finance lease. In some cases, both parties can recognize a lease contract as a direct finance lease as well. US GAAP rules ASC 842 – Leases define five criteria test points to evaluate a lease contract classification. It’s important to note that both the lessor

A lessee can make several temporary installments or improvements in an underlying asset. However, at the time of lease contract expiry, these installments must be removed. Asset retirement is an obligation under certain terms and conditions in leasing. US GAAP rules ASC 410 and ASC 842 apply to asset retirement obligation accounting in various cases.

When two parties enter into a lease contract, they negotiate different terms. One of the common ways lessors use is to offer incentives or allowances to the lessees. A lease incentive reduces the lease liability for the lessee. It should be recognized under ASC 842 if it meets certain criteria. Accounting for the lease incentive

A synthetic lease is a form of sale and leaseback arrangement. A company sells an asset to another company and leases it back immediately. Thus, it retains control of the asset and reduces the tax liability. A synthetic lease can result at different participation levels of the lessee. Both parties need to follow some specific