Toby's Foods Limited (TFL) is in the supermarket business. It is a public company and is thinking
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TFL obtains revenues from two sources: in-store sales to customers and fees from sales of new franchises and continuing franchise fees. This year was a banner year for sales of new franchises. The company sold and booked revenues for 10 new franchised stores. Most of these new stores have not yet opened but locations have been found and deposits have been taken from each of the franchisees.
Under the terms of the franchise contracts, TFL has agreed to absorb any losses that the stores suffer for the first five years. Based on market research, however, and the location of the new stores, it is highly unlikely that losses will occur.
Just in case, TFL has requested that franchisees deposit a certain amount of money in a trust fund. In addition, TFL has agreed to issue shares of TFL to the franchisees if the stores are profitable in the first two years.
During the year, TFL issued long-term debt that is convertible into common shares of the company. The number of common shares varies depending on the share price. Because of the potential for taking the company private, TFL agreed to certain concessions. If the company goes private, TFL must pay back 120% of the face value of the debt.
Instructions
Assume the role of the controller and discuss the financial reporting issues.
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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Related Book For
Intermediate Accounting
ISBN: 978-0470161012
9th Canadian Edition, Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
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