Equity

Question 1

What is issued stock?

Answer 1

The amount of authorized stock that was actually issued

Question 2

What is stock outstanding?

Answer 2

Stock outstanding is issued stock that was purchased by shareholders, excluding treasury stock.

Question 3

What is an MRFI?

Answer 3

Mandatorily redeemable financial instruments are common stock with an unconditional obligation. They are liabilities unless otherwise stated.

Question 4

How do you determine the number of shares for treasury and common stock?

Answer 4

Divide the listed amount by the par value.

Question 5

What is the issuance of stock journal entry? (Entry for the Company issuing the stock)

Answer 5

Debit cash for total
Credit stock account (cs or ps)
Credit APIC

Question 6

What is the journal entry for direct cost of issuing stock?

Answer 6

Debit APIC
Credit Cash
For amount of cost, don’t confuse with debt issue cost which is amortized

Question 7

What is a stock warrant?

Answer 7

The right to purchase shares at a specified price and specified period.

Question 8

What is a preemptive right?

Answer 8

The right to purchase a pro rata amount of a new issuance of the same class of stock.

Question 9

What happens when rights are issued for no consideration?

Answer 9

The issuer makes only a memorandum entry because there is no money involved

Question 10

Treasury Stock Acquisition

What is the journal entry for the cost method?

Answer 10

Debit Treasury Stock
Credit Cash

It reduces total Equity

Question 11

Treasury Stock Acquisition

What is the journal entry for par value method?

Answer 11

Debit TS
Debit APIC
Debit retained earnings
Credit Cash

Question 12

What is the journal entry for the cost method, treasury stock acquisition?

Answer 12

Debit: Treasury Stock
Credit: Cash

Question 13

What’s the journal entry for cash dividends?

Answer 13

Declaration: Dr. retained earnings & Cr. dividend payable.
Payment: Dr. dividend payable
& Credit cash

Question 14

What’s a stock dividend?

Answer 14

A portion of retained earnings is capitalized as part of Paid in capital.

Question 15

True or false

In a stock dividend the par value of shares does not change.

Answer 15

True

Question 16

True or false
In a stock split the par value of shares does not change.

Answer 16

False. The par value of shares is reduced.

Question 17

An issuance of shares that is less than 20-25% of previously outstanding common shares is what?

Answer 17

A stock dividend

Question 18

An issuance of shares that is more than 20-25% of previously outstanding common shares is what?

Answer 18

A stock split

Question 19

What is a stock split in the form of a dividend?

Answer 19

When an entity is legally required to capitalize the par value of additional shares issued

Question 20

How is stock dividend recorded when the equity method is used?

Answer 20

No journal entries are made. Only a memorandum entry reducing unit cost.

Question 21

What’s the Journal entry for a stock dividend?

Answer 21

Debit Retained Earnings
Credit stock dividend distributable
Credit APIC (difference)

Question 22

How are property dividends measured?

Answer 22

At Fair value

Question 23

How is a property dividends recorded when declared?

Answer 23

Dr Retained earnings
Cr Property dividend payable

Question 24

How are property dividends recorded when paid?

Answer 24

Dr property dividend payable
Cr Inventory

Question 25

Does a stock split impact the capital accounts, APIC and retained earnings?

Answer 25

No

Question 26

What happens to APIC and Retained earnings when a stock dividend that is more than par value is declared and distributed?

Answer 26

APIC is increased (since shares are over par value)
RE is decreased (since this account is debited in the transaction)

Question 27

Fun fact

Answer 27

No gain or loss is recognized in treasury stock transactions.