Chapter 10 — Equity Transactions and Disclosures

10.10 Presentation and Disclosure

10.10.1 Equity Components of Corporations

The equity section of a corporation’s balance sheet includes captions, as applicable, for common stock (see Section 10.10.1.1), preferred stock (see Section 10.10.1.2), APIC (see Section 10.10.1.3), retained earnings or accumulated deficit (see Section 10.10.1.4), accumulated other comprehensive income (see Section 10.10.1.5), and noncontrolling interests (see Section 10.10.1.6). The amount of any treasury stock, discount on shares, and stock subscription receivables and other amounts owed by shareholders from the issuance of stock may be shown separately as deductions from the applicable capital stock accounts.

This section only discusses the presentation of components of equity that are not treated as temporary equity. Section 9.8.1 discusses the presentation of equity instruments classified in temporary equity.

10.10.1.1 Common Stock

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 5-02, Balance Sheets [Reproduced in ASC 210-10-S99-1]

29. Common stocks. For each class of common shares state, on the face of the balance sheet, the number of shares issued or outstanding, as appropriate (see § 210.4-07), and the dollar amount thereof. If convertible, this fact should be indicated on the face of the balance sheet. For each class of common shares state, on the face of the balance sheet or in a note, the title of the issue, the number of shares authorized, and, if convertible, the basis of conversion (see also § 210.4-08(d)). Show also the dollar amount of any common shares subscribed but unissued, and show the deduction of subscriptions receivable therefrom. Show in a note or statement the changes in each class of common shares for each period for which a statement of comprehensive income is required to be filed.

Regulation S-X, Rule 4-07, Discount on Shares [Reproduced in ASC 505-10-S99-2]

Discount on shares, or any unamortized balance thereof, shall be shown separately as a deduction from the applicable account(s) as circumstances require.

Common shares may be issued with or without a par or stated value. If shares of common stock do not have a par or stated value, the common stock account is credited for the full amount attributable to the shares, after deduction for any qualifying issuance costs (see Section 10.2.2.2). If shares of common stock have a par or stated value, the common stock account is credited for that amount and any remaining amount attributable to the issuance of the shares, after deduction of qualifying issuance costs (see Section 10.2.2.2), is typically credited to APIC. However, note 1 to paragraph 30(a) of Regulation S-X, Rule 5-02 (see Section 10.10.1.3), permits entities to combine APIC with the common stock account, if appropriate.

Example 10-16

Recognition of Common Stock Issued at a Premium to the Par Value

Entity Q issues 8 million shares of common stock for cash proceeds of $1 per share (or aggregate proceeds of $8 million). The par value of each common share issued is $0.01. Assume that there are no qualifying issuance costs. Entity Q would record the following journal entry to reflect the issuance of the common shares:

In some situations, common shares may be issued at a discount to their par or stated value. In these cases, the discount must be presented separately from the common stock account.

Example 10-17

Recognition of Common Stock Issued at a Discount to the Par Value

Entity R issues 8 million shares of common stock for cash proceeds of $1 per share (or aggregate proceeds of $8 million). The par value of each common share issued is $1.50. Assume that there are no qualifying issuance costs. Entity R would record the following journal entry to reflect the issuance of the common shares:

Receivables that must be classified as a reduction of equity (see Sections 10.2.1.1 and 10.2.1.2) are presented separately from the common stock account.

10.10.1.2 Preferred Stock

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 5-02, Balance Sheets [Reproduced in ASC 210-10-S99-1]

28. Preferred stocks which are not redeemable or are redeemable solely at the option of the issuer. State on the face of the balance sheet, or if more than one issue is outstanding state in a note, the title of each issue and the dollar amount thereof. Show also the dollar amount of any shares subscribed but unissued, and show the deduction of subscriptions receivable therefrom. State on the face of the balance sheet or in a note, for each issue, the number of shares authorized and the number of shares issued or outstanding, as appropriate (see § 210.4-07). Show in a note or separate statement the changes in each class of preferred shares reported under this caption for each period for which a statement of comprehensive income is required to be filed. (See also § 210.4-08(d).)

Regulation S-X, Rule 4-07, Discount on Shares [Reproduced in ASC 505-10-S99-2]

Discount on shares, or any unamortized balance thereof, shall be shown separately as a deduction from the applicable account(s) as circumstances require.

Like common stock, preferred stock may be issued with or without a par or stated value. However, in practice, entities generally record the entire carrying amount of preferred securities (i.e., proceeds received net of qualifying issuance costs) in a single line item within the equity section whether or not the instrument contains a par or stated value. That is, entities typically do not recognize APIC accounts for preferred stock issuances, although such recognition would not be inappropriate. However, in the unusual circumstance in which shares of preferred stock are issued at a discount to their par or stated value, entities should consider the SEC’s guidance in Regulation S-X, Rule 4-07, on discounts on shares.

Receivables that must be classified as a reduction of equity (see Sections 10.2.1.1 and 10.2.1.2) are presented separately from the preferred stock account.

10.10.1.3 Additional Paid-In Capital

ASC 220-10

Reporting Changes and Certain Income Tax Effects Within Accumulated Other Comprehensive Income

45-14 The total of other comprehensive income for a period shall be transferred to a component of equity that is presented separately from retained earnings and additional paid-in capital in a statement of financial position at the end of an accounting period. A descriptive title such as accumulated other comprehensive income shall be used for that component of equity.

ASC 505-10

General

25-1 Additional paid-in capital, however created, shall not be used to relieve income of the current or future years of charges that would otherwise be made to the income statement. See paragraph 852-20-25-2 for an exception to this guidance related to reorganizations.

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 5-02, Balance Sheets [Reproduced in ASC 210-10-S99-1]

30. Other stockholders’ equity. (a) Separate captions shall be shown for (1) additional paid-in capital, (2) other additional capital, . . .

Note 1 to Paragraph 30.(a).

Additional paid-in capital and other additional capital may be combined with the stock caption to which it applies, if appropriate. . . .

The amount of consideration received upon the issuance of shares of common stock in excess of their par or stated value is credited to APIC. Other transactions that may involve crediting or charging the APIC account include, but are not limited to, those related to:

Issuances and settlements of equity-classified contracts on an entity’s common stock (see Section 10.5.2 and Deloitte’s Roadmap Contracts on an Entity’s Own Equity).
Stock dividends and stock splits (see Section 10.3.3.2).
The triggering of a down-round feature (see Section 10.3.4.3.6).
Dividends when the entity has an accumulated deficit (see Section 10.3.4.4.1).
Liquidating dividends and other returns of capital (see Section 10.3.4.4.3).
Treasury stock transactions (see Section 10.4).
Modifications and exchanges of common stock and equity-classified contracts on an entity’s common stock (see Section 10.6 as well as Section 6.1.4.1 of Deloitte’s Roadmap Contracts on an Entity’s Own Equity).
Conversions of convertible instruments into common stock (see Section 10.7).
Payments made by shareholders (see Section 10.8).
Quasi-reorganizations (see Section 10.9).
The issuance of a convertible instrument at a substantial premium (see Section 7.6.3 of Deloitte’s Roadmap Issuer’s Accounting for Debt).
Share-based payments accounted for under ASC 718 (see Deloitte’s Roadmap Share-Based Payment Awards).
The termination of S corporation election (see Section 10.10.2.3).

ASC 220-10-45-14 requires APIC to be presented separately from accumulated other comprehensive income on the face of the balance sheet. However, Regulation S-X Rule 5-02, permits an SEC registrant to combine APIC amounts with the related common stock account, if appropriate in the circumstances.

An entity is not permitted to reduce or remove an accumulated deficit balance by charging it against APIC unless (1) the entity emerges from Chapter 11 proceedings and applies fresh-start accounting (see ASC 852-10) or (2) the criteria for a quasi-reorganization are met (see Section 10.9).

10.10.1.4 Retained Earnings

ASC 220-10

Reporting Changes and Certain Income Tax Effects Within Accumulated Other Comprehensive Income

ASC 505-10

Appropriation of Retained Earnings

45-3 Appropriation of retained earnings is permitted, provided that it is shown within the shareholders' equity section of the balance sheet and is clearly identified as an appropriation of retained earnings.

45-4 Costs or losses shall not be charged to an appropriation of retained earnings, and no part of the appropriation shall be transferred to income.

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 5-02, Balance Sheets [Reproduced in ASC 210-10-S99-1]

30. Other stockholders' equity. (a) Separate captions shall be shown for . . . (3) retained earnings, (i) appropriated and (ii) unappropriated (See § 210.4-08(e)), . . .

(b) For a period of at least 10 years subsequent to the effective date of a quasi-reorganization, any description of retained earnings shall indicate the point in time from which the new retained earnings dates and for a period of at least three years shall indicate, on the face of the balance sheet, the total amount of the deficit eliminated.

Retained earnings represent an accumulation of an entity’s net income over time. While direct adjustments may be made to retained earnings (e.g., dividends, treasury stock transactions, effect of changes in accounting principles), entities whose accumulated charges exceed credits will report an accumulated deficit. In either case, retained earnings (or accumulated deficit) must be shown as a separate line item on the face of the balance sheet. If an entity has appropriated a portion of retained earnings for a specific purpose (e.g., amounts set aside to cover litigation for which no accrual has been made under ASC 450-20-45-2), the entity must also present appropriated and unappropriated retained earnings separately on the face of the balance sheet.

10.10.1.5 Accumulated Other Comprehensive Income

ASC 220-10

Reporting Changes and Certain Income Tax Effects Within Accumulated Other Comprehensive Income

45-14A An entity shall present, either on the face of the financial statements or as a separate disclosure in the notes, the changes in the accumulated balances for each component of other comprehensive income included in that separate component of equity, as required in paragraph 220-10-45-14. In addition to the presentation of changes in accumulated balances, an entity shall present separately for each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income and other amounts of current-period other comprehensive income. Both before-tax and net-of-tax presentations are permitted provided the entity complies with the requirements in paragraph 220-10-45-12. Paragraph 220-10-55-15 illustrates the disclosure of changes in accumulated balances for components of other comprehensive income as a separate disclosure in the notes to financial statements. (See paragraph 220-10-50-5.)

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 5-02, Balance Sheets [Reproduced in ASC 210-10-S99-1]

30. Other stockholders' equity. (a) Separate captions shall be shown for . . . (4) accumulated other comprehensive income. . . .

Under U.S. GAAP, certain items that are not recognized in net income must be reported in other comprehensive income (e.g., foreign currency translations, unrealized gains or losses on available-for-sale securities, and cash flow hedge accounting adjustments). Accumulated other comprehensive income represents an accumulation of these items over time. ASC 220-10 and Regulation S-X, Rule 5-02, require entities to present accumulated other comprehensive income as a separate line item in equity on the face of the balance sheet. Further, in accordance with ASC 220-10 and other U.S. GAAP, entities must provide various disclosures related to reported comprehensive income and accumulated comprehensive income.

10.10.1.6 Noncontrolling Interests

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 5-02, Balance Sheets [Reproduced in ASC 210-10-S99-1]

31. Noncontrolling interests in consolidated subsidiaries. State separately in a note the amounts represented by preferred stock and the applicable dividend requirements if the preferred stock is material in relation to the consolidated equity.

An entity with noncontrolling interests must separately present line items within the equity section of the balance sheet for such interests that are in the form of (1) common stock or (2) preferred stock. For more information about the presentation and disclosure requirements for noncontrolling interests, see Chapter 8 of Deloitte’s Roadmap Noncontrolling Interests.

10.10.2 Equity Components of Other Entities

The equity section of the balance sheet of partnerships, limited liability entities, and S corporations may include captions that are different from those in a corporation’s balance sheet.

10.10.2.1 Limited Partnerships

SEC Staff Accounting Bulletins

SAB Topic 4.F, Limited Partnerships [Reproduced in ASC 505-10-S99-5]

Facts: There exist a number of publicly held partnerships having one or more corporate or individual general partners and a relatively larger number of limited partners. There are no specific requirements or guidelines relating to the presentation of the partnership equity accounts in the financial statements. In addition, there are many approaches to the parallel problem of relating the results of operations to the two classes of partnership equity interests.

Question: How should the financial statements of limited partnerships be presented so that the two ownership classes can readily determine their relative participations in both the net assets of the partnership and in the results of its operations?

Interpretive Response: The equity section of a partnership balance sheet should distinguish between amounts ascribed to each ownership class. The equity attributed to the general partners should be stated separately from the equity of the limited partners, and changes in the number of equity units authorized and outstanding should be shown for each ownership class. A statement of changes in partnership equity for each ownership class should be furnished for each period for which an income statement is included.

The income statements of partnerships should be presented in a manner which clearly shows the aggregate amount of net income (loss) allocated to the general partners and the aggregate amount allocated to the limited partners. The statement of income should also state the results of operations on a per unit basis.

SAB Topic 4.F addresses the presentation of the equity accounts of a limited partnership that files financial statements with the SEC. The equity accounts of the general and limited partners must be shown separately.

10.10.2.2 Limited Liability Entities

ASC 272-10

Presentation of the Equity Section of the Statement of Financial Position

45-3 The financial statements of a limited liability company shall be similar in presentation to those of a partnership. The limited liability company owners are referred to as members; therefore, the equity section in the statement of financial position shall be titled members’ equity. If more than one class of members exists, each having varying rights, preferences, and privileges, the limited liability company is encouraged to report the equity of each class separately within the equity section. As indicated in paragraph 272-10-50-1, if the limited liability company does not report the amount of each class separately within the equity section, it shall disclose those amounts in the notes to financial statements (see paragraph 272-10-50-3).

45-4 Even though a member’s liability may be limited, if the total balance of the members’ equity account or accounts described in the preceding paragraph is less than zero, a deficit shall be reported in the statement of financial position.

45-5 If the limited liability company records amounts due from members for capital contributions, such amounts shall be presented as deductions from members’ equity. Presenting such amounts as assets shall be inappropriate except in very limited circumstances when there is substantial evidence of ability and intent to pay within a reasonably short period of time, as described in paragraph 505-10-45-2.

ASC 272-10 addresses the presentation of the equity accounts of a limited liability entity.

10.10.2.3 S Corporations

SEC Staff Accounting Bulletins

SAB Topic 4.B, S Corporations [Reproduced in ASC 505-10-S99-3]

Facts: An S corporation has undistributed earnings on the date its S election is terminated.

Question: How should such earnings be reflected in the financial statements?

Interpretive Response: Such earnings must be included in the financial statements as additional paid-in capital. This assumes a constructive distribution to the owners followed by a contribution to the capital of the corporation.

If an entity has elected to be taxed as an S Corporation and that election is subsequently terminated or revoked, the SEC staff requires the entity to include any existing undistributed earnings in APIC.

10.10.3 Other Disclosure Requirements

10.10.3.1 General

ASC 505-10

General

50-1 This Section provides guidance on the disclosure requirements associated with the separate accounts comprising shareholders’ equity and the specific outstanding securities issued by an entity.

ASC 505-10 requires entities to provide certain disclosures related to their equity accounts. Other authoritative literature contains additional disclosure requirements, and SEC registrants must provide incremental disclosures in accordance with the SEC’s rules and regulations. This section does not discuss every disclosure requirement related to equity accounts under U.S. GAAP or the SEC rules and regulations, nor does it address disclosures required for equity instruments that are classified in temporary equity. See Section 9.8.2 for a discussion of the disclosures required by SEC registrants that classify equity instruments in temporary equity.

10.10.3.2 Changes in Stockholders’ Equity

ASC 505-10

General

50-2 If both financial position and results of operations are presented, disclosure of changes in the separate accounts comprising shareholders’ equity (in addition to retained earnings) and of the changes in the number of shares of equity securities during at least the most recent annual fiscal period and any subsequent interim period presented is required to make the financial statements sufficiently informative. Disclosure of such changes may take the form of separate statements or may be made in the basic financial statements or notes thereto.

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 3-04, Changes in Stockholders’ Equity and Noncontrolling Interests [Reproduced in ASC 505-10-S99-1]

An analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets shall be given in a note or separate statement. This analysis shall be presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately. Also, state separately the adjustments to the balance at the beginning of the earliest period presented for items which were retroactively applied to periods prior to that period. With respect to any dividends, state the amount per share and in the aggregate for each class of shares. Provide a separate schedule in the notes to the financial statements that shows the effects of any changes in the registrant’s ownership interest in a subsidiary on the equity attributable to the registrant.

ASC 505-10 and Regulation S-X, Rule 3-04, require an entity to provide a reconciliation of changes in each caption of stockholders’ equity and noncontrolling interests.

10.10.3.3 Repurchases of Common Stock

ASC 505-30

General

50-1 This Section establishes incremental disclosure requirements that apply to specific circumstances in which an entity repurchases its own outstanding common stock.

Disclosures Relating to State Laws

50-2 State laws may effect an entity’s repurchase of its own outstanding common stock. If state laws relating to an entity’s repurchase of its own outstanding common stock restrict the availability of retained earnings for payment of dividends or have other effects of a significant nature, those facts shall be disclosed.

Disclosures Relating to Allocation of Repurchase Price

50-3 A repurchase of shares at a price significantly in excess of the current market price creates a presumption that the repurchase price includes amounts attributable to items other than the shares repurchased.A repurchase of shares at a price significantly in excess of the current market price may require an entity to allocate amounts to other elements of the transaction under the requirements of paragraph 505-30-30-2.

50-4 The allocation of amounts paid to the treasury shares and other elements of the transaction requires significant judgment and consideration of many factors that can significantly affect amounts recognized in the financial statements. Disclosure of the allocation of amounts and the accounting treatment for such amounts is necessary to enable the user of the financial statements to understand the nature of significant transactions that may affect, in part, the capital of the entity. The allocation of amounts paid and the accounting treatment for such amounts shall be disclosed.

ASC 505-30 provides disclosure requirements related to the repurchase of common stock.

10.10.3.4 Pertinent Rights and Privileges of Outstanding Securities

ASC 505-10

General

50-3 An entity shall explain, in summary form within its financial statements, the pertinent rights and privileges of the various securities outstanding. Examples of information that shall be disclosed are dividend and liquidation preferences, participation rights, call prices and dates, conversion or exercise prices or rates and pertinent dates, sinking-fund requirements, unusual voting rights, and significant terms of contracts to issue additional shares or terms that may change conversion or exercise prices (excluding standard antidilution provisions). An entity shall disclose within its financial statements the number of shares issued upon conversion, exercise, or satisfaction of required conditions during at least the most recent annual fiscal period and any subsequent interim period presented. An entity also shall disclose within the financial statements actual changes to conversion or exercise prices that occur during the reporting period (excluding changes due to standard antidilution provisions).

50-3A For a financial instrument with a down round feature that has been triggered during the reporting period and for which an entity has recognized the effect in accordance with paragraph 260-10-25-1, an entity shall disclose the following:

The fact that the feature has been triggered
The value of the effect of the down round feature that has been triggered.

Securities With Preferences

50-4 An entity that issues preferred stock (or other senior stock) that has a preference in involuntary liquidation considerably in excess of the par or stated value of the shares shall disclose the liquidation preference of the stock (the relationship between the preference in liquidation and the par or stated value of the shares). That disclosure shall be made in the equity section of the statement of financial position in the aggregate, either parenthetically or in short, rather than on a per-share basis or through disclosure in the notes.

Pending Content (Transition Guidance: ASC 105-10-65-7)

50-4 An entity that issues preferred stock (or other senior stock) that has a preference in involuntary liquidation other than par or stated value of the shares shall disclose the liquidation preference of the stock (the relationship between the preference in liquidation and the par or stated value of the shares). That disclosure shall be made in the equity section of the statement of financial position in the aggregate, either parenthetically or in short, rather than on a per-share basis or through disclosure in the notes.

50-5 In addition, an entity shall disclose both of the following within its financial statements (either on the face of the statement of financial position or in the notes thereto):

The aggregate or per-share amounts at which preferred stock may be called or is subject to redemption through sinking-fund operations or otherwise
The aggregate and per-share amounts of arrearages in cumulative preferred dividends.

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 4-08, General Notes to Financial Statements [Reproduced in ASC 235-10-S99-1]

If applicable to the person for which the financial statements are filed, the following shall be set forth on the face of the appropriate statement or in appropriately captioned notes. The information shall be provided for each statement required to be filed, except that the information required by paragraphs (b), (c), (d), (e), and (f) of this section shall be provided as of the most recent audited balance sheet being filed and for paragraph (j) of this section as specified therein. When specific statements are presented separately, the pertinent notes shall accompany such statements unless cross-referencing is appropriate. . . .

(d) [Preferred shares.] Aggregate preferences on involuntary liquidation, if other than par or stated value, shall be shown parenthetically in the equity section of the balance sheet.

ASC 505-10 and Regulation S-X, Rule 4-08, require entities to provide specific disclosures related to the terms and conditions of all outstanding equity instruments of an entity.

10.10.3.5 Redeemable Securities

ASC 505-10

Redeemable Securities

50-11 An entity that issues redeemable stock shall disclose the amount of redemption requirements, separately by issue or combined, for all issues of capital stock that are redeemable at fixed or determinable prices on fixed or determinable dates in each of the five years following the date of the latest statement of financial position presented.

10.10.3.6 Convertible Preferred Stock

ASC 505-10

Convertible Preferred Stock

05-5 Entities may issue convertible preferred stock that may be convertible into common stock at the lower of a conversion rate fixed at time of issuance and a fixed discount to the market price of the common stock at the date of conversion.

05-6 Certain convertible preferred stock may have a contingently adjustable conversion ratio. Examples of a conversion price that is variable based on future events are the following:

A liquidation or a change in control of an entity
A subsequent round of financing at a price lower than the convertible security’s original conversion price
An initial public offering at a share price lower than an agreed-upon amount.

05-7 Certain convertible preferred stock may become convertible only upon the occurrence of a future event outside the control of the holder.

Convertible Preferred Stock

50-12 The objective of the disclosure about convertible preferred stock is to provide users of financial statements with:

Information about the terms and features of convertible preferred stock
An understanding of how those instruments have been reported in an entity’s statement of financial position and statement of financial performance
Information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.

50-13 To comply with the general disclosure requirements of paragraph 505-10-50-3, an entity shall explain the pertinent rights and privileges of each outstanding instrument, including, but not limited to, the following information:

Number of shares issued and par value
Dividends
Conversion or exercise prices or rates and number of shares into which the instrument is potentially convertible
Pertinent dates, such as conversion date(s)
Parties that control the conversion rights
Manner of settlement upon conversion and any alternative settlement methods, such as cash, shares, or a combination of cash and shares
Terms that may change conversion or exercise prices, number of shares to be issued, or other conversion rights and the timing of those rights (excluding standard antidilution provisions)
Liquidation preference required by paragraph 505-10-50-4 and unusual voting rights
Other material terms and features of the instrument that are not listed above.

50-14 An entity shall provide the following incremental information for contingently convertible instruments or the instruments that are described in paragraphs 505-10-05-6 through 05-7:

Events or changes in circumstances that would adjust or change the contingency or would cause the contingency to be met
Information on whether the shares that would be issued if the contingently convertible securities were converted are included in the calculation of diluted earnings per share (EPS) and the reasons why or why not
Other information that is helpful in understanding both the nature of the contingencies and the potential impact of conversion.

50-15 An entity shall disclose the amount of dividends declared for each period for which a statement of financial performance is presented, in addition to the disclosures required by paragraph 505-10-50-5.

50-16 An entity shall disclose the following as of the date of the latest statement of financial position presented:

Changes to conversion or exercise prices that occur during the reporting period other than changes due to standard antidilution provisions
Events or changes in circumstances that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed
The number of shares issued upon conversion, exercise, or satisfaction of required conditions during the reporting period.

50-17 If a conversion option is accounted for as a derivative in accordance with Subtopic 815-15, an entity shall provide disclosures in accordance with Topic 815 for the conversion option in addition to the disclosures required by the guidance in this Section, if applicable.

50-18 An entity shall disclose the following information about derivative transactions entered into in connection with the issuance of convertible preferred stock within the scope of this Subtopic regardless of whether such derivative transactions are accounted for as assets, liabilities, or equity instruments:

The terms of those derivative transactions (including the terms of settlement)
How those derivative transactions relate to the instruments within the scope of this Subtopic
The number of shares underlying the derivative transactions
The reasons for entering into those derivative transactions.

ASC 505-10 requires entities to provide detailed information and numerous disclosures related to convertible preferred stock.

10.10.3.7 Dividends

SEC Rules, Regulations, and Interpretations

Regulation S-X, Rule 4-08, General Notes to Financial Statements [Reproduced in ASC 235-10-S99-1]

(e) Restrictions which limit the payment of dividends by the registrant.

(1) Describe the most significant restrictions on the payment of dividends by the registrant, indicating their sources, their pertinent provisions, and the amount of retained earnings or net income restricted or free of restrictions.

(2) Disclose the amount of consolidated retained earnings which represents undistributed earnings of 50 percent or less owned persons accounted for by the equity method.

(3) The disclosures in paragraphs (e)(3)(i) and (ii) of this section shall be provided when material. . . .

(i) Describe the nature of any restrictions on the ability of consolidated subsidiaries and unconsolidated subsidiaries to transfer funds to the registrant in the form of cash dividends, loans or advances (i.e., borrowing arrangements, regulatory restraints, foreign government, etc.).

(ii) Disclose separately the amounts of such restricted net assets for unconsolidated subsidiaries and consolidated subsidiaries as of the end of the most recently completed fiscal year.

Regulation S-X, Rule 4-08(e), requires an SEC registrant to disclose restrictions that limit the payment of dividends. In addition, entities should consider comments made by the SEC staff at the 2004 AICPA Conference on Current SEC and PCAOB Developments. At that conference, the SEC staff addressed disclosures that should be provided when an entity issues a security that gives the holder participation rights in significant “intended” dividends. For example, the entity may intend to pay a regular dividend equal to all cash in excess of current operating needs (e.g., an income deposit security) even though the company may have little or no history of paying dividends. The SEC staff stated that registrants that issue such types of instruments should consider disclosing information about them that includes, at a minimum:

A clear articulation of the dividend policy, how the registrant arrived at it, and how the registrant expects to be able to pay it.
An identification of risks and limitations (e.g., the discretionary nature of the dividend, debt covenants, state laws).
Forward-looking information regarding the registrant’s future ability to pay intended dividends.
A registrant’s intentions and assumptions regarding liquidity and capital resources in MD&A (e.g., intended dividend policy and funding source for the next year, effects of new securities and financing arrangements, effects of paying out cash as dividends rather than reinvesting in the business).

The disclosures should address all of the relevant facts and circumstances of the specific security offering. The SEC staff did not indicate where, and in which documents, these disclosures should be included.

10.10.3.8 Stock Dividends and Stock Splits

ASC 505-20

General

50-1 Paragraph 505-20-25-2 identifies a situation in which a stock dividend in form is a stock split in substance. In such instances every effort shall be made to avoid the use of the word dividend in related corporate resolutions, notices, and announcements and that, in those cases in which because of legal requirements this cannot be done, the transaction be described, for example, as a stock split effected in the form of a dividend.

For a discussion of disclosures required when there is a stock dividend or stock split after the balance sheet date, but before the financial statements are issued, see Section 10.3.3.3.

10.10.3.9 Receivables From the Issuance of Equity

If an SEC registrant classifies a receivable from the sale of equity as an asset because it is paid before the financial statements are issued, the entity must disclose the payment date in a note to the financial statements in accordance with SAB Topic 4.E. This disclosure requirement also applies to other receivables from shareholders, officers, or affiliates that are classified as assets because they are paid before the financial statements are issued.

10.10.3.10 Down-Round Features

ASC 505-10

General

The fact that the feature has been triggered
The value of the effect of the down round feature that has been triggered.

10.10.3.11 Limited Liability Entities

ASC 272-10

General

50-1 If the limited liability company does not report the equity of each class of its members separately within the equity section, it shall disclose those amounts in the notes to financial statements (see paragraph 272-10-50-3). If the limited liability company maintains separate accounts for components of members’ equity (for example, undistributed earnings, earnings available for withdrawal, or unallocated capital), disclosure of those components, either on the face of the statement of financial position or in the notes to financial statements, is permitted.

50-2 As indicated in paragraph 272-10-45-6, if comparative financial statements are presented, amounts shown for comparative purposes shall be comparable with those shown for the most recent period, or any exceptions to comparability shall be disclosed in the notes to financial statements. Situations may exist in which financial statements of the same reporting entity for periods prior to the period of conversion are not comparable with those for the most recent period presented, for example, if transactions such as spinoffs or other distributions of assets occurred prior to or as part of the limited liability company’s formation. In such situations, sufficient disclosure shall be made so the comparative financial statements are not misleading.

50-3 Both of the following disclosures shall be made in the financial statements of a limited liability company:

A description of any limitation of its members’ liability
The different classes of members’ interests and the respective rights, preferences, and privileges of each class. Additionally, as discussed in paragraph 272-10-50-1, if the limited liability company does not report separately the amount of each class in the equity section of the statement of financial position, those amounts shall be disclosed.

If the limited liability company has a finite life, the date it will cease to exist shall be disclosed.

10.10.3.12 Quasi-Reorganizations

ASC 852-20

General

50-2 After such a readjustment, retained earnings previously accumulated cannot properly be carried forward under that title. A new retained earnings account shall be established, dated to show that it runs from the effective date of the readjustment, and this dating shall be disclosed in financial statements until such time as the effective date is no longer deemed to possess any special significance. The dating of retained earnings following a quasi-reorganization would rarely, if ever, be of significance after a period of 10 years. There may be exceptional circumstances in which the discontinuance of the dating of retained earnings could be justified at the conclusion of a period less than 10 years.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.