Investment in Joint Venture
Southwood uses the equity method of accounting for its investment in a joint venture in which it
does not have a controlling interest. Under this method, Southwood records its proportionate
share of losses under “Other, net” in the accompanying Consolidated Statements of Income
(Loss) with a corresponding decrease in the carrying value of the investment.
Income Taxes
Income taxes are recorded using the accrual method and the provision for federal and state
income taxes is based on income reported in the consolidated financial statements, adjusted for
items not recognized for income tax purposes. Provisions for deferred income taxes
are recognized for accelerated depreciation and other temporary differences. A valuation
allowance is provided to offset any net deferred tax assets if, based upon available evidence, it
is more likely than not that some or all of the deferred tax assets will not be realized. Investment
tax credits previously realized for income tax purposes are amortized for financial statement
purposes over the life of the property, giving rise to the credit.
Change in Accounting Principles
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board
(FASB) Accounting Standards Update (ASU) 2015-17, Income Taxes (Topic 740): Balance
Sheet Classification of Deferred Taxes, which requires companies to report deferred tax assets
and liabilities together as a single noncurrent item in their classified balance sheet. The
Company has elected to apply the guidance prospectively as allowed by the standard, therefore
there is no prior year effect to the financial statements as a result of this change.
Effective January 1, 2018, the Company adopted FASB ASU 2016-18, Statement of Cash
Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalent. As a result, restricted cash and restricted cash
equivalents are now included with cash and cash equivalents when reconciling the beginning-
of-period and end-of-period total amounts shown on the statement of cash flows. This guidance
is applied retrospectively as determined by the standard. The prior year statement of cash
flows has been restated as a result of this change.
New Accounting Standards to be Adopted in the Future
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The
standard’s core principle is that a company will recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. This standard also
includes expanded disclosure requirements that result in an entity providing users of financial
statements with comprehensive information about the nature, amount, timing, and uncertainty of
revenue and cash flows arising from the entity’s contracts with customers. This standard will
be effective for the Company for the year ending December 31, 2019. The Company is currently
in the process of evaluating the impact of adoption of this ASU on the financial statements.
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