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As required under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, WB must evaluate the carrying value of PC and T. against the fair value, as determined by the market capitalization of the two companies at the official spin-off date. In this case, both PC and T. will qualify as discontinued operations because after the confirmation of the transaction neither will be a part of the business or parent company.
WB maintains a March 31 end of year and the stock sale was dated May of 2000 which may cause a reporting concern. It is crucial that WB reports these events properly for the sake of accuracy. WB will be responsible to verify if any changes occur in their end of year reporting under SFAS No. 131. "The registrant, in consultation with its counsel, is responsible for determining whether a fundamental change has occurred. The staff would not ordinarily expect a change in segment definitions after the balance sheet date to constitute a fundamental change. Accordingly, the staff would not ordinarily expect segment information to be recast until the historical financial statements include the period in which the change in segment definition occurred. However, disclosure of the nature and expected effects of the change would be required under Items 101 and 303 of Regulation S-K. (SEC Regulations Committee, 2001)
The final decision is based on GAAP income statements as affected by statement 144. WB should report the disposal of PC and T. As discontinued operations pending confirmation from shareholders and the necessary regulatory approval of the transaction with Siegel. The NAREIT's Board of Governors points out that Statement 144 "requires that...
"Further, financial results from these properties must be reclassified from continuing operations to discontinued operations for all prior periods presented in financial statements." (Yungmann & Taube, 2002) Thus, all investors and analysts will be responsible for understanding WB's interpretation for those continuing operations included in the discontinued operations and the later reclassifications of the operations in the final reporting.
In conclusion, this memo aimed to address the recent business dealings between Winning Big and Bugsy Siegel from an accounting standpoint. The project entailed researching accounting issues as well as other available sources that pertained to the business arrangement. The memo worked on an assumption that the case of WB and Siegel would be researched and those results reported back to management. The memo attempted to decipher the issues, site applicable professional sources and discuss options.
References
SEC Regulations Committee. (June 12, 2001). Section C - Changes in Segment Reporting. Joint Meeting with SEC Staff. Retrieved on February 7, 2005, at http://preview.aicpa.org/belt/sec06_01.htm
Yungmann, George, & Taube, David. (Jul/Aug 2002). GAAP Net Income Measures Up. Retrieved on February 7, 2005, at http://www.nareit.com/portfoliomag/02julaug/accounting.shtml
Accounting
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