8/6/16 Flashcards
What recognition is necessary for a stock dividend?
Not revenue, it increases the number of shares held and decreases the cost basis per share.
Define date of declaration
The date the board of directors formally approves a dividend. On this date a liability is created (dividends payable), and retained earnings is reduced (debited).
How do you calculate ending retained earnings?
Net income/loss
- Dividends (cash, property, and stock) declared
+/- Prior period adjustments
+/- Accounting changes reported retrospectively
+ Adjustment for quasi-reorganization
= Change in Retained Earnings
If a company issued rights to its existing shareholders without consideration (allowed recipients to puchase unissued common stock for an amount in excess of par value), how are common stock and APIC affected when the rights are issued?
Upon issuance neither account is affected. If the rights are later exercised then the accounts will increase. Common stock would then increase by par value of the stock issued and APIC by the difference of the purchase price and the par value.
What is decided on the record date of a dividend?
Who will receive the dividend.
What happens to a gain/loss on treasury stock?
No gain or loss on the purchase and/or sale of treasury stock is recognized. Any “difference” goes to APIC or if there is not enough paid-in capital to absorb a loss, the loss would be debited (subtracted) from “retained earnings”.
What is the primary purpose of a quasi-reorganization?
To eliminate a retained earnings deficit so that future earnings will be available for dividends rather than limited to offsetting the retained earnings deficit.
What is a liquidating dividend?
A dividend to shareholders in excess of retained earnings. Debited first to APIC and then to common or preferred stock.
At what value should a property dividend be recorded at?
Should be recorded in retained earnings at the property’s market value at date of declaration.
How are cumulative preferred stock dividends paid?
They are paid on par value (not sales price) of preferred stock and have a “preference” over common stock dividends until all past preferred stock dividends are paid.
For a compensatory stock option plan for which the grant and exercise dates are different, the stock options outstanding account should be reduced at the:
Exercise date.
How do you calculate book value per share of common stock?
Common Stockholders’ Equity/Common Shares Outstanding
On which date is a public entity required to measure the cost of employee services in exchange for an award of equity interest, based on the FMV of the award?
Date of grant.
How is the intrinsic value method calculated for dividends?
Number of share options X Market price of the stock on the date of the grant less exercise price of the share option
What financial instrument issued by a public company should be reported on the issuer’s books as a liability on the date of issuance?
Common stock that contains an unconditional redemption feature.
