5.2 Stockholders Equity

Question 1

Scrip dividends

Answer 1

Scrip dividends are issuances of promises to pay in future and may bear interest; therefore treated as liability until paid.

Question 2

defined benefit ESOP plan

Answer 2

In a defined benefit ESOP plan, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. The compensation cost recorded is equal to the contribution or commitment to contribution made during the period.

Question 3

Stock dividends, stock splits or stock subscriptions - Adjusted retroactively.

Answer 3

Stock dividends, stock splits or stock subscriptions - Adjusted retroactively.

If prior period financial statements are presented, the effects of stock dividends and stock splits must be retroactively adjusted for those periods.

If a stock dividend or stock split occurs after the end of the period but before the financial statements are issued, the earnings per share calculations should be based on the new number of stocks.

Reverse stock splits would retroactively reduce shares outstanding for all periods presented.