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Financial Accounting Reporting > EQUITY > Flashcards

EQUITY Flashcards

1
Q

Using the cost method of accounting what impact does this acquisition have on total equity and book value per common share?

A

Total EQUITY sees a (Decrease) where the total assets and equity are a contra equity account

For the BOOK VALUE per Share there will be an (increase)since the equity is 100 and there were 10 shares outstanding (100 / 10 to 11 (100 - 45) / 5)

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2
Q

Calc, the additional paid in capital on the issuance of the stock?

A

Combined cash amount $110,000 - fair value 40,000 = 70,000

1000 shares x 5 par value = 5,000

70,000 - 5,000 = 65,000 additional paid in capital

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3
Q

Calc, the report common stock outstanding?

A

50,000 shares x 2.50 par value = 125,000

Common Stock 540,000 - 125,000 = 415,000

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4
Q

Calc, the liquidating dividends?

A

Cash dividends 400,000 - 300,000 retained earnings = 100,000

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5
Q

Calc, the APIC for the stock dividends?

A

retained earnings (3,000 shares x 10% ) x 9) 2700

Common stock dividends (3,000 x 10% x 2%) 600

APIC - Common 2100

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6
Q

When there is a loss for treasury stock do you record that loss?

A

No it’s not recorded and that loss is changed from treasury loss to APIC in the capital from the treasury stock

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7
Q

What is the purpose of appropriation of retained earnings?

A

disclosure purposes

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8
Q

Are Common Shareholders entitled to dividends?

A

No they’re not a corporation may choose not to provide dividends to common shareholders however usually they do receive dividends in terms it’s called liquidating distributions

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9
Q

What do convertible preferred stock holders do with their stock?

A

they can convert the stock into share of another class. usually it’s a common stock

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10
Q

What items causes a decrease in retained earnings?

A

1) net losses
2) cash or property
3) stock dividends
4) split ups effected in the form of a dividend
5) certain treasury stock transactions

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11
Q

What items causes a increase in retained earnings?

A

net income

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12
Q

Financial instruments issued by a public company should be reported on the issuer’s books as a liability on the date of issurance?

A

common stock that contains an unconditional redemption feature (Mandatorily redeemable financial instruments (MRFL’s)

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13
Q

When rights are issued without consideration how does this affect Common and APIC?

A

No affect because it’s stock rights without consideration

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14
Q

Calc, the equity when it was reduced when the rights are issued for no consideration?

A

memorandum entry is made since there is no consideration

120,000 shares outstanding x 0.10 = 12,000

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15
Q

Calc, the amount should be recorded investment in stock right?

A

We need to allocate the cost 80 to figure out the cost for “Right”

Stock 80 cost x (95 / 95+5) = 76
Right 80 cost x (5 / 95 + 5) = 4
80

Stock right should be recorded at 4,000 (1,000 rights x 4) on the balance sheet = 4,000

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16
Q

Calc, the equity Common stock, preferred Stock, and APIC?

A

Common Stock

1 stated value x 10,000 shares = 10,000

Preferred Stock

10 par value 3,000 shares = 30,000

APIC is 185,000

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17
Q

Calc, the APIC in capital account increases as result of this transaction?

A

LEGAL SERVICES 140,000 (1,000 X 140 MARKET PRICE)
C/S 5,000 (1,000 X 5 PAR VALUE)
APIC 135,000

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18
Q

Calc, the proceeds allocated preferred stock?

A

1000 shares x 36 = 36,000
Preferred Stock 2,000 shares x 27 = 54,000

(54,000 / (54,000 / 36,000) = 60%

80,000 x 60% = 48,000 preferred stock

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19
Q

Does the par value method report a greater for additional paid in capital and a greater amount for retained earnings?

A

APIC and R/E are both No

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20
Q

What happens to treasury stock stock as debit to treasury stock and credit to cash equal to the amounts of the purchases price?

A

Total equity and book value per share are both decreased

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21
Q

On the cost method what is the effect on the treasury stock amount reported in the balance sheet?

A

APIC - “No Effect”
Total Equity - “ Decrease”

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22
Q

Calc, the prepaid insurance and insurance expense for the financial statements?

A

Prepaid insurance

Paid 3600 / 36 months = 100 x 2 = 200

3600 - 200 = 3,400 prepaid insurance

Insurance Expense

Insurance Expense 4410 - 3400 = 1010 + 90 = 1,100

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23
Q

Calc, the issued common stock using the PAR VALUE Method?

A

Common Stock 100,000 shares + 10,000 = 110,000 x 5 = 550,000 transactions increased

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24
Q

Calc, the issued common stock using the cost Method?

A

Common Stock 100,000 issued - 5000 treasury stock = 95,000

95,000 + 1000 + 10,000 = 106,000 x 2 = 212,000 outstanding common shares

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25
Q

Calc, the retained earnings as a result of treasury stock transaction using the cost method?

A

20,000 shares 12 per share = 240,000
15,000 shares 12 per share =180,000

240,000 - 180,000 = 60,000 treasury stock

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26
Q

Calc, the retained earnings using the cost method?

A

Retained Earnings 300,000 + 60,000 = 360,000

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27
Q

Calc, the Additional paid in capital increase?

A

1000 shares x 40 market price = 40,000

1000 shares x 10 par value = 10,000

40,000 - 10,000 = 30,000 APIC

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28
Q

When the cost method of accounting for treasury stock transaction have on treasury stock acquisition and reissuance of treasury stock?

A

has no effect on the acquisition and reissuance of treasury stock

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29
Q

When the par value of accounting for treasury stock transaction have on treasury stock acquisition and reissuance of treasury stock?

A

acquisition of treasury stock decreases and reissuance of treasury stock will increase

30
Q

Calc, paid in capital related to the treasury stock on the balance sheet?

A

Debit trea stock (500 x 6) 3000
Debit APIC 2000
Credit Cash (500 shares x 10) 5000

31
Q

The Par value method for treasury stock differs from the cost method because

A

it reverses the original entry to issue the common stock with any difference between carrying amount and purchase price adjusted through paid in capital or retained earnings. it treats a subsequent reissuance as new issuance of common stock

32
Q

Under the cost method record the entry for Preferred stock, Additional paid in capital, retained earnings?

A

Treasury Stock is 22,500

To retire the treasury stock we need to debit Preferred Stock 2000 shares x 25% x 50 = 25,000

Also need to debt APIC preferred stock 30,000 x 25% 7500
10,000 - 7500 = 2500

33
Q

When is retained earnings affected?

A

When a company retires its stock at a higher price than the original issued price

34
Q

When is APIC decreased?

A

When the shares of common stock are reacquired and retired

35
Q

Calc, the journal entries to record with connection with this transaction?

A

Preferred Stock 5000 shares x 20 par value 100,000
APIC 7,500
5000 Shares / 20,000 x 30,000 = 7500
Retained Earnings 42,500
Securities 80,000
gain 70,000

36
Q

Calc, the common stock outstanding?

A

Aggregate par value 50,000 shares x 2.50 = 125,000

common stock 540,000 - 125,000 = 415,000 common stock

37
Q

Calc, the APIC balance?

A

APIC - 2,550,000

Step 1 - 20,000 x 26 = 520,000
20,000 x 20 = 400,000
120,000

Step 2 - 20,000 x 24 = 480,000
20,000 x 20 = 400,000
80,000 remaining balance

38
Q

Calc, the preferred stock report dividends in arrears on the financial statements?

A

3000 shares x 100 par value x 5% cumulative preferred stock x 2 years - 10,000 paid in year 4

= Disclosure of $20,000

39
Q

On what date is working capital decreased?

A

It’s decreased on “Date of declaration” because a current liability is increased

40
Q

Are retained earnings affected on the payment date?

A

No it’s not affected bc when dividends are declared Dividends payable is debited and cash account is credited

41
Q

Are retained earnings affected on the date of declaration?

A

Yes

Retained earnings are debited
Dividends payable is credited

42
Q

What affects does Dividends on the declaration of date for dividends?

A

On the Date of declaration

Dividends payable is credited

On the date of record

There are no entries and no effect on dividends

On the date of payment

There are no affect on dividends

Dividends payable 100
cash 100

43
Q

Calc, the declaration date?

A

Debit Retained earnings 4,000
Credit dividends payable 4,000

Company issued 10,000 shares with common stock of 2,000

10,000 - 2,000 = 8,000 shares x 10 per share = 80,000 outstanding share

80,000 shares x 5% = 4,000

44
Q

Calc, the retained earnings and shareholders equity?

A

To calc the RE we need the following items

Year 1 - 100,000
Year 2 - 200,000
= 300,000 Net Income

Dividends 10,000 x 25 per share = 250,000

300,000 Net Income - Dividends = 250,000 = 50,000

To calc Shareholders equity

10,000 x 30 par value common stock 300,000 common stock

APIC 200,000

Retained Earnings

50,000

300,000 + 200,000 + 50,000 = 550,000 shareholders equity

45
Q

Calc, the amount that should be reported as retained earnings using the cost method?

A

RE - 300,000 + Net Income 60,000 = 360,000 Retained Earnings

Under the cost method the treasury stock is debited for the purchase price and the stock is subsequently reissued for an greater amount than the acquisition cost

46
Q

During the liquidating dividends what happens to additional paid in capital and retained earnings?

A

Additional paid in capital and retained earnings are both decreased during liquidating dividends bc when you liquidate dividends is to decrease contribution capital

47
Q

When a corporation declares and distributed a property dividends, how is the excess carrying amount over the fair value reported?

A

Reported as reduction in operation income

48
Q

Are retained earnings and APIC affected when there is a declared and paid liquidating dividends ?

A

Retained earnings is no affect however, APIC there is a decrease

49
Q

Calc, the property dividends Retained earnings?

A

So the Fair Value is 78,000 - 18,000 gain = 60,000 Retained earnings

Note the FAIR VALUE isn’t the retained earnings

50
Q

When a stock dividend is declared what happens to retained earnings?

A

RE is reclassified as contribution capital

51
Q

Calc, the common stock issued and outstanding?

A

Issued

100,000 shares
10,000 unissued

110,000
x 2 (Stock split)

220,000

Outstanding

100,000
1,000 treasury stock sold
5,000 treasury stock held

106,000
x 2

212,000

52
Q

What are the general entries for the 5% stock affect additional paid in capital and retained earnings statement of equity?

A

Retained Earnings is decreased and APIC is increased

So when stock dividend is less than 20 - 25% the general entries are the following

Debit Retained Earnings 300
Credit Capital stock 300

The difference between Fair Value and Par Value is the difference is account in APIC

53
Q

Are there any entries receipts of stocks?

A

No entries are made

54
Q

Declaration of stock dividends increases current liability?

A

No bc it’s reclassified to equity

55
Q

Calc, the aggregate amount that should be debited earnings for the stock dividends?

A

For the
Fair Value 10% is 15,000
Par Value 28% is 30,800

56
Q

Are retained earnings affected during declaration of stock split?

A

No and no entries are needed either

57
Q

Calc, the common stock and Preferred Stock outstanding shares?

A

To calc the outstanding share of Common Stock we need to first

300,000 / 5 (Stated value) = 60,000 Common Stock outstanding

To calc the preferred Stock outstanding we need to first

255,000 / 15 (stated value) = 17,000 preferred Stock

58
Q

When is retained earnings decreased during the date of declaration or date of payment?

A

At the date of declaration when the RE is decreased

59
Q

The par value method of accounting for treasury stock differs from the cost method because

A

it reverse the original entry to issue the common stock with any difference between carrying amount and purchase price adjusted

60
Q

When stock right are issued for no consideration how is this recorded?

A

only in a memorandum entry is made

61
Q

Calc, the retained earnings for the property dividends?

A

fair value of 78,000 - 18,000 gains = 60,000 decreases

Retained earnings 60,000
Dividends payable 60,000

62
Q

Calc, the amount of proceeds allocated to preferred Stock?

A

Step 1 - calc the total share for common and preferred stock

Common Stock 1,000 shares x 36 per share = 36,000

Preferred Stock 2,000 shares x 27 per share = 54,000

54,000 + 36,000 = 90,000
54,000 / 90,000 = 0.60

Lump sum preferred stock 80,000 x 0.60 = 48,000

63
Q

The right allowed the recipients to purchase unissued common stock for an amount in excess of par value. Common Stock will increase

A

with neither the rights are issued and rights lapse

64
Q

Calc, the shares of common stock did rudd have outstanding?

A

300,000 shares
x 10%
= 30,000 300,000 + 30,000 = 330,000
- 100,000 (Purchase 100,000 shares)
+ 50,000 shares reissued
x 2
= 560,000 outstanding shares

65
Q

Calc, the allocated preferred stock?

A

1000 common stock x stock was selling for 36 per share

1000 x 36 = 36,000

2000 shares x preferred stock 27 per share

2000 x 27 = 54,000

54,000 + 36,000 = 90,000 / 54,000 = 60%

80,000 convertible preferred stock for lump sum x 60% = 48,000

66
Q

Calc, the preferred stock and common stock payable?

A

Preferred Stock

4,000 shares x 100 par x 6% = 24,000 + 12,000 arrears = 36,000 preferred stock

Common Stock is 44,000 bc common share holders will receive cash dividends

Preferred Stock 36,000
Common stock 44,000

67
Q

Are retained earnings affected when cash dividends are reported?

A

retained earnings aren’t affected when dividends are paid out bc retained earnings are debited when dividends are declared

68
Q

Calc the total liabilities for consolidated financial statements?

A

Here we add the Total liabilities for the parent & subsidiary but remember we don’t include any AR or AP since they are eliminated entirely

So add the total liability for the parent and sub to the get the consolidated amount

69
Q
A
70
Q
A
71
Q
A

Financial Accounting Reporting (20 decks)

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