Chapter 13: Equity Flashcards
Does a declaration of a stock split affect retained earnings?
No. No journal entry is recorded for a stock split.
A property dividend should be recorded in retained earnings at the property’s
Fair value at the date of declaration.
What are the different classes of equity?
Capital stock, additional paid-in capital, retained earnings, and accumulated other comprehensive income
Are common shareholders entitled to dividends?
No.
Under the cost method for Treasury Stock, when reissue price is greater than cost, where is the excess reported?
The excess is credited to paid-in capital from treasury stock transactions.
(DB) Cash
(CR) Treasury Stock
(CR) PiC from treasury stock
Under the cost method for Treasury Stock, when reissue price is less than cost, where is the excess reported?
The excess is debited to Retained Earnings.
(DB) Cash
(DB) Retained earnings
(CR) Treasury Stock
What will impair the firm’s ability to pay dividends in the future between a stock split and stock dividend?
A stock dividend will impair the firm’s ability to pay dividends while both will not decrease SE.
What is the entry for issuance of treasury stock under the par-value method?
(DB) Cash
(CR) Treasury stock
(CR) PiC from treasury stock transactions
What’s the entry for the treasury stock purchase using the par-value method when the TS is acquired for above issue price?
Under the par-value method, the acquisition of treasury stock is accounted for by reducing additional paid-in capital by the amount recorded when the shares were originally issued.
(DB) Treasury Stock [shares x par value]
(DB) Additional paid-in capital [shares x original amount at issue date]
(DB) Retained Earnings [difference]
(CR) Cash [for amount purchased at]
What is a stock warrant?
A right to purchase share at a specified price within a specified period.
What is the journal entry for dividend declaration and subsequent payment?
(DB) Retained Earnings [shares outstanding x $]
(CR) Dividend payable
(DB) Dividend payable
(CR) Cash
Is a gain or loss recorded during a treasury stock retirement?
No gain or loss is reported on transactions involving entities own stock.
When are common shareholders allowed to receive a dividend?
Once all preferred dividends in arrears have been paid.
What are dividends in arrears?
Preferred dividends that were not declared in prior years.
When does a stock dividend become a stock split?
When there is an issuance of more than 20% to 25% of the previously outstanding common shares (25% for public entities)
When is the par value of stocks reduced? With a stock split or a stock dividend?
A stock split.
What is the JE for a stock dividend?
(DB) Retained earnings [(shares x %) x market price]
(CR) Common stock dividend distributable [par value]
(CR) Additional paid-in capital – common [difference]
How are share-based payments initially measured?
At the grant-date fair value of the equity instruments that an entity is obligated to issue
What is the grant-date?
A date at which a mutual understanding of the key terms and conditions if the award have been reached
What is the JE for the recognition of a share-based payment during the requisite service period?
(DB) Compensation expense
(CR) Paid-in capital – equity award
What is the JE when the shares are issued for a share-based payment?
(DB) Cash
(DB) Paid-in capital – equity award
(CR) Common stock
(CR) Paid-in capital in excess of par
What is the JE when a share-based payment is forfeited or it expires?
(DB) Paid-in capital – equity award
(DB) Paid-in capital – forfeitures
What is the vesting period?
The requisite service period is the period during which employees must perform services.
What happens to retained earnings when a small stock dividend is declared (less than 20% to 25% of the previously outstanding common shares)?
Retained earnings is debited for the fair value of the stock.
How is RE effected when a cash dividend is declared?
It is decreased on date of declaration
