Teleflix, Inc. is one of the world’s leading Internet television networks, with millions of subscribers across the globe. Teleflix’s library of digital content offers subscribers millions of hours of TV shows and movies per month, including original series. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause, and resume watching, all without commercials or commitments. The Montreal-based company is organized into three operating segments:

• Domestic Streaming: This segment focuses on revenues generated from Canadian subscribers. Subscribers pay $9.99 per month for unlimited content streaming on any two devices.

• International Streaming: This segment focuses on revenues generated from the United States, United Kingdom, and Australian subscribers. Subscribers purchase a monthly plan that ranges from $7.99 to $14.99 to receive unlimited content.

• Domestic DVD: This segment derives its revenue predominantly from DVD-by-mail subscriptions. The DVD mail service is offered because it is difficult, if not impossible, to obtain a license for new, blockbuster releases in a streaming format. The price per plan varies from $4.99 to $19.99 per month. The plans vary based on the number of DVDs that can be received per month and the overall quality of the video (DVD, Blu-ray, or Blu-ray 3D). Due to the logistics costs, this plan is available only in Canada.

Teleflix is preparing for its 2020 year-end audit. The company is under some financial pressure to meet or exceed analysts’ forecast estimates. (Analysts expect that diluted EPS will be $1.75 per share.) Investors are focusing on reported earnings because streaming content is becoming more accessible and competition is heating up. In addition to earnings, analysts will have a close eye on the company’s debt to equity ratio, which is currently above industry standards. Considering all that has taken place in the industry, the company’s share price has experienced volatility rates of 35% over the past year and is currently trading at $180 per share. You have recently been hired as an assistant to the controller. The accounting group has put together a draft statement of financial position and operations based on all routine and recurring transactions (Exhibit I). Your first assignment is to help the controller determine the appropriate reporting for the current year’s new and nonroutine transactions. You are provided with a snapshot of the company’s relevant accounting policies (Exhibit II) and a file outlining

key accounting issues regarding the nonroutine and new transactions (Exhibit III). The controller has requested that you prepare a report that discusses the nonroutine accounting issues and provides a preliminary recommendation. Specifically, the controller would like to understand the impacts of these transactions on the company EPS and debt to equity ratio calculations. The controller reminds you that the income tax expense and deferred tax amounts will be determined by the tax specialist group.

Required Prepare the report for the controller.

Additional Notes:

• The fair value of the stock options when granted is $2,100,000

• Ignore any tax effect of temporary differences

Answer rating: 100% (QA)

Answer Note Some information including the capital structure of the DVD segment and the debt compone... View the full answer