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CPA > Chapter 7: Stockholders Equity & Cash Flows > Flashcards

Chapter 7: Stockholders Equity & Cash Flows Flashcards

1
Q

What is legal capital (capital stock)?

A

Amount of capital that must be kept by company for protection of creditors.

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2
Q

Common stockholders equity formula:

A

+ Total stockholders equity

  • preferred stock outstanding (greater of call or par)
  • cumulative preferred dividends in arrears
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3
Q

Book value per common share formula:

A

Common shareholders equity

/ common shares outstanding

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4
Q

What is the difference between cumulative & non-cumulative preferred stock?

A

Cumulative - dividends not declared in a year accumulative over time

Non-cumulative - dividends not paid in a year are not accumulated.

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5
Q

What is participating preferred stock?

A

Stock receives additional dividends over current dividend amount

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6
Q

Change in Retained Earnings formula:

A 
Net income/loss
- dividends declared
\+/- prior period adjustments
\+/- accounting for changes retrospectively
\+/- adjustment from quasi-reorg
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7
Q

What is the purpose of appropriated RE?

What is the JE for recording this?

A

Disclose to shareholders that RE is not available for dividends.

DB: RE
CR: RE (appropriated)

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8
Q

What is the purpose of a quasi-reorganization?

A

Eliminate deficit in RE by restating overvalued assets to lower FVs

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9
Q

JE for issue of common stock?

A

DB: Cash
CR: C/S
CR: APIC

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10
Q

When do you calculate gain/loss under the cost method of treasury stock?

When do you calculate gain/loss under the par value method of treasury stock?

A

G/L calculation at reissue date (after repurchase)

G/L calculation at repurchase date

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11
Q

What is donated stock?

How should the company record this?

A

When company receives own stock as donation from a shareholder.

Company should record donated stock at FMV.

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12
Q

What is the JE for recording donated stock?

What is the JE for donated stock sold?

A

DB: Dontaed treasury stock
CR: APIC

DB: Cash
CR: APIC or DB: APIC
CR: Donated T/S

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13
Q

What is the date of declaration?

What JE is recorded on this date?

A

Date the board of directors approves a dividend.

DB: Retained Earnings
CR: Dividends Payable

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14
Q

What is a property in-kind dividend?

What occurs on the date of declaration?

A

Dividend of non-cash assets.

Property distributed should be restated to FV and G/L calculated on I/S.

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15
Q

What is a scrip dividend & when are they used?

What is the JE for scrip dividends on date of declaration?

A

Note payable of dividend at a later date. Used when there are cash shortages.

DB: Retained Earnings
CR: Notes Payable

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16
Q

What do IFRS & SEC require for public entities in regards to disclosures for dividends?

A

Must disclose dividends per share and in total for each class of shares in notes.

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17
Q

What is considered a small & large stock dividend?

A

Small: < 20% - 25%
Large: > 20% - 25%

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18
Q

When a company declares a cash dividend, Retained earnings is decreased on the day of ?

A

Declaration

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19
Q

What is a liquidating dividend?

A

Amount of dividends in excess of RE.

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20
Q

How are compensatory stock options valued?

A

FV of the options issued

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21
Q

What is compensation expense & how is it treated when accounting for stock options?

A

FV calculated under a valuation model

Expense allocated over the period between the grant date and vesting date

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22
Q

What is the number of shares issued formula?

A

of shares = # of shares outstanding + # of treasury

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23
Q

How do you record a small stock dividend JE?

A

DB: RE (using market)
CR: Common Stock (using par)
CR: Contributed Capital (APIC)

24
Q

How do you record a large stock dividend JE?

A

DB: RE (using par)
CR: Common Stock (using par)

25
Q

During a stock dividend, is there a change in overall Owners Equity or liability?

A

NO

26
Q

How do you record a stock split JE?

A

Memo entry only on date of declaration

27
Q

What are the steps for allocation between preferred and common stocks when P/S have participation?

A 
P/S: dividends in arrears
P/S: current period dividend
C/S: matching amount using P/S %
P/S: additional %
C/S: remainder
28
Q

Allocation difference between fully participating & partially participating?

A

Fully: Dividends allocated based on total par value outstanding

Partially: Dividends allocated to P/S based on %, the rest goes to C/S

29
Q

What is the JE during the issuance of rights of a stock right?

What is the JE during the exercise of rights of a stock right?

What is the JE during the expiration of rights of a stock right?

A

No JE

DB: Cash
CR: C/S

No JE

30
Q

What is the JE during the issuance of rights of a stock right to outside parties for services?

What is the JE during the issuance of rights of a stock right to outside parties for services?

A

DB: Expense (market - exercise $) * shares
CR: Rights outstanding (market - exercise $) * shares

Remove Rights outstanding & record on exercise price

31
Q

When the rights are issued, which of the following accounts will be increased?

A

NONE - No journal entry is needed, because no transaction has yet taken place.

32
Q

What EPS method is used for stock options & warrants?

A

Treasury Stock method

33
Q

What EPS method is used for convertible bonds & preferred stock?

A

If- converted method

34
Q

What are the steps in the treasury stock method?

A

1) Assume exercise of all shares
2) purchase back stock from proceeds of exercise
3) the difference of shares between 1 & 2 is added to denominator

35
Q

What are the steps in the if-converted method?

A

1) multiply out to find the interest expense (net of tax effect for bonds) and add to numerator
2) Convert shares and add to denominator

36
Q

If there is more than one potential common stock, which item enters into the EPS formula first?

A

One with the lowest numerator/denominator ratio

37
Q

How are bank overdrafts categorized under US GAAP & IFRS?

A

US GAAP - Financing activity

IFRS - Operating activity

38
Q

What are the three types of activity within the cash flow?

A

Operating
Investing
Financing

39
Q

What are the two types of cash flow presentations?

Which one is preferred by GAAP & IFRS?

Which one is often used by company’s?

A

Direct & Indirect methods

Direct is preferred

indirect is used

40
Q

What is required when using the direct method under US GAAP? IFRS?

Where is this requirement reported?

A

reconciliation of net income to net cash from operating activities

not required for IFRS

supplemental schedule

41
Q

What is the reconciliation formula to get back to operating cash from net income?

A 
= Net Income
\+ non-cash expenses/losses
- non-cash income/gains
\+ increase op. Liability
- increase op. Asset
42
Q

What is included in the direct method operating activities?

A 
\+ cash received from customers
\+ interest received
\+ dividends received
\+ cash from sale of trading security
\+ other operating cash receipts
- cash paid to customers
- interest paid
- income taxes paid
- cash paid to get trading securities
- other operating cash payments
43
Q

What makes up the cash received from customers?

A 
= revenues
- increase in A/R
\+ decrease in A/R
\+ increase in UR
- decrease from UR
44
Q

What makes up the cash paid to suppliers?

A 
= COGS
\+ increase in inventory
- decrease in inventory
- increase in A/P
\+ decrease in A/P
45
Q

What additional disclosure do you need when using the indirect method?

A

cash paid for interest and income taxes

46
Q

How do the following affect on cash in the cash flow balance for the following:

1) Increase an asset
2) Decrease an asset
3) Increase a liability
4) Decrease a liability

A

1) Decrease cash
2) Increase cash
3) Increase cash
4) Decrease cash

47
Q

What type of adjustments do you need to make under the indirect method work?

A 
"CLAD"
CA/CL
Gains & Losses
Amortization & depreciation
deferred items
48
Q

What makes up the investment activities?

A

loans to related parties
C/S purchase
proceeds from sale of investment
proceeds from AFS & HTM securities

49
Q

What makes up the financing activities?

A 
pay dividends
issuance of stocks &amp; bonds
purchase of T/S
borrowing funds
paying principal of bonds &amp; loans
50
Q

What activity do these items belong too:

1) Selling products/collecting A/R
2) Treasury Stock
3) Purchasing inventory/ paying suppliers
4) Paying dividends
5) Paying taxes

A

1) CFO
2) CFF
3) CFO
4) CFF
5) CFO

51
Q

What activity do these items belong too:

1) Issuing C/S or P/S
2) buy/sell trading securities
3) paying principal on debt
4) buying long term assets
5) paying interest on debt

A

1) CFF
2) CFO
3) CFF
4) CFI
5) CFO

52
Q

What activity do these items belong too:

1) recording dep., amort., depletion
2) borrowing funds
3) Collect interest on investment
4) selling assets/investments
5) collecting dividends
6) recording equity method information

A

1) Nothing
2) CFF
3) CFO
4) CFI
5) CFO
6) Nothing

53
Q

What are the general steps in the indirect method cash flow operating activities?

A

1) Net income
2) adjust non cash items (dep., amort.)
3) adjust gains/losses on assets
4) adjust for changes in CA & CL

54
Q

What should not be disclosed in an enterprise’s statement of cash flows indirect method or supplemental info?

A

Cash flow per share

55
Q

Under IFRS, how are these categorized:

1) Interest Received
2) Interest Paid
3) Dividend Received
4) Dividend Paid
5) Taxes Paid

A

1) CFO or CFI
2) CFO of CFF
3) CFO or CFI
4) CFO or CFF
5) CFO, CFI, CFF

CPA (35 decks)

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