Chapter 18 Flashcards
How to record the extra costs associated with an IPO?
Debit - Additional Paid in Capital
Credit - Cash
How to account for the sale of stock?
Debit - Cash (Amount received)
Credit - Common Stock (Par Value x # of shares)
Credit - Additional Paid in Capital
Ex:
Sold for $1,000, 10 shares of $1 Par Value stock
o Dr. Cash 1,000
o Cr. Common Stock 10
o Cr. Additional Paid-In Capital 990
How to allocate proceeds from a lump sale of preferred and common stock?
The relative fair market value proportional to the total amount sold.
Any dividends not declared by the BOD and not paid to
the Preferred Shareholders are termed
“Dividends in Arrears” (NOT RECORDED, but must be disclosed in
the financial statements)
When stock is issued in a non-cash transaction, the transaction
is recorded at the more clearly determinable of:
o Fair market value of the stock
o Fair market value of the non-cash consideration
Convertible Preferred Stock:
at holder’s option, may be converted to some predetermined number of shares of Common Stock
Callable Preferred Stock:
at company’s option, may call/buy back the shares of
Preferred Stock at some predetermined price
Participating Preferred Stock:
may share in any profit distribution above
distribution beyond a prescribed rate
When Treasury Stock is “resold”, there is:
NO gain or loss recorded in the Income Statement
Journal Entry to record buy back of stock:
Debit - Treasury Stock
Credit - Cash
Ex:
Journal Entry to record buy back of stock at $25 per share
o Dr. Treasury Stock $25
o Cr. Cash $25
How to record a sale of treasury stock above cost:
Debit - Cash
Credit - Treasury Stock
Credit - Treasury APIC
Example of re-sale of $30 treasury stock at cost of $25
o Dr. Cash $30
o Cr. Treasury Stock $25
o Cr. Treasury Stock - APIC $ 5
How to record a sale of treasury stock below cost:
Debit - Cash
Debit - Treasury APIC
Credit - Treasury Stock
Example of re-sale of $20 treasury stock at cost of $25
o Dr. Cash $20
o Dr. Treasury Stock – APIC $ 5
o Cr. Treasury Stock $25
ALL Dividends except ________ reduce Stockholder’s
Equity.
ALL Dividends except Stock Dividends reduce Stockholder’s Equity because with all of the other dividends, there is a distribution of company assets
How to record cash dividends:
Debit - Dividends or Retained Earnings
Credit - Cash
How to record stock dividends:
Debit - Retained Earnings
Credit - Common Stock
What is the entry recorded on the date of declaration of dividends?
Debit - Dividends of Retained Earnings
Credit - Dividends Payable
Date of Declaration: dividends become a legal obligation and are
recorded by the company
What is the entry recorded on the date of record of dividends?
NO ENTRY
Date of Record: no entry; companies determine who owns the shares of stock on that date and that is who will be paid dividends
What is the entry recorded on the date of payment of dividends?
Debit - Dividends Payable
Credit - Cash
Date of Payment: date that the dividends are actually paid
What is a “small” stock dividend and what price should it be recorded at?
- “Small” Stock Dividend is less than 25% of shares outstanding
- Record at “fair value” of shares given
How do you record a “small” stock dividend?
Debit - Retained Earnings
Credit - Common Stock
Credit - Common Stock APIC
What is a “large” stock dividend and what price should it be recorded at?
- “Large” Stock Dividend is greater than 25% of shares
outstanding - Record at “par value”
How do you record a “large” stock dividend?
Debit - Retained Earnings
Credit - Common Stock
How to record a stock split?
NO Journal Entry
In the Stockholders’ Ledger, adjust the following for the effect of the Stock Split.
