Cool Care, an SEC registrant and a hospital operator in the United States, acquired all of the outstanding common stock of Healthy Hearts, an unrelated third party that operates specialty hospitals focused exclusively on cardiology. After the acquisition, Healthy Hearts become a wholly owned subsidiary of Cool Care (the “Acquisition”).

Several years before the acquisition, in a public offering, Healthy Hearts raised capital to expand and upgrade its operating rooms by issuing $400 million aggregate principal amount of 7.00% senior notes due in 2020 (the “Notes”). In performing due diligence and assessing the terms of the Notes, Cool Care determined that it could obtain cheaper financing and instructed Healthy Hearts to make a tender offer for any and all its outstanding Notes (the “Tender Offer”). Accordingly, contemporaneously with the Acquisition, all the outstanding Notes were redeemed. Healthy Hearts did not have sufficient cash on hand before the Acquisition to redeem the Notes.

Additional Facts:

The Acquisition meets the definition of a business combination.

• The terms of the Notes did not require Healthy Hearts to redeem or offer to
repurchase the Notes upon a change in control (i.e., the decision to redeem the
Notes was voluntary).

• It was Cool Care’s decision to redeem the Notes.

• The fair value of the Notes as of the date of the Acquisition was equal to the
amount paid to redeem the tendered Notes. In addition, Healthy Hearts carried the
Notes at their par value (i.e., there is neither a premium nor a discount present
with the Notes).

Required:

In consideration of the information presented above, draft a memo answering the following questions. Reference the FASB Accounting Standards in answer.

1. Should Healthy Hearts include the extinguishment of debt (i.e., the Notes) in its pre-combination financial statements or should Cool Care include it in its post-combination financial statements? Depending on the answer, determine the gain or loss on the extinguishment of debt to be recognized. (Note that for this question, the pre-combination financial statements represent Healthy Hearts’ operations before the Acquisition and the post-combination financial statements represent Cool Care’s consolidated financial statements after the Acquisition.)

2. Are there differences between ASC 805 and IFRS 3 that should be considered in