Vroom Inc.: A Financing and Investing Exercise

Vroom Inc. (Vroom) was a video conferencing technology company located in London, Ontario, Canada. The founder of Vroom was reviewing the company’s financial performance for its second fiscal year. He had already reviewed the company’s operating decisions over the past fiscal year and was now eager to review the company’s financing and investing transactions.

This exercise is best positioned at the end of an introductory course in financial accounting to review basic financing and investing concepts. The exercise would also be well placed at the beginning of an intermediate financial accounting course as a refresher for students. This exercise encourages students to combine their knowledge of several different areas of accounting (equity financing, debt financing, capital leases, and trading investments) and is therefore best taught after students have had an opportunity to learn and practice these topics. This exercise is designed for students to apply their knowledge of financial accounting with a specific focus on equity financing, debt financing using the effective interest rate method, accounting for non-strategic investments traded on an active market using fair value through profit and loss (FVPL), and accounting for capital leases. Upon completion of this exercise, students will be able to:<ul><li>Account for bond interest expense and amortization (or accretion) using the effective interest rate method.</li><li>Account for a partial bond recall.</li><li>Understand the differences between preferred shares and common shares and account for various transactions therein.</li><li>Apply the fair value through profit and loss methodology to equity-based trading investments (stocks).</li><li>Use the implied borrowing rate and lease terms on a capital lease to appropriately account for interest on a lease obligation and depreciation on a right-to-use asset (This exercise is intended for an introductory accounting class. Students do not need to determine the implied borrowing rate. It has been provided).</li></ul>

• equity financing
• financial accounting
• debt financing
• effective interest rate method
• fair value through profit and loss
• cccounting for capital leases