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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
Calc, the retained earnings as a result of treasury stock transaction using the cost method?
20,000 shares 12 per share = 240,000 15,000 shares 12 per share =180,000 240,000 - 180,000 = 60,000 treasury stock
26
Calc, the retained earnings using the cost method?
Retained Earnings 300,000 + 60,000 = 360,000
27
Calc, the Additional paid in capital increase?
1000 shares x 40 market price = 40,000 1000 shares x 10 par value = 10,000 40,000 - 10,000 = 30,000 APIC
28
When the cost method of accounting for treasury stock transaction have on treasury stock acquisition and reissuance of treasury stock?
has no effect on the acquisition and reissuance of treasury stock
29
When the par value of accounting for treasury stock transaction have on treasury stock acquisition and reissuance of treasury stock?
acquisition of treasury stock decreases and reissuance of treasury stock will increase
30
Calc, paid in capital related to the treasury stock on the balance sheet?
Debit trea stock (500 x 6) 3000 Debit APIC 2000 Credit Cash (500 shares x 10) 5000
31
The Par value method for treasury stock differs from the cost method because
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
Under the cost method record the entry for Preferred stock, Additional paid in capital, retained earnings?
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
When is retained earnings affected?
When a company retires its stock at a higher price than the original issued price
34
When is APIC decreased?
When the shares of common stock are reacquired and retired
35
Calc, the journal entries to record with connection with this transaction?
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
Calc, the common stock outstanding?
Aggregate par value 50,000 shares x 2.50 = 125,000 common stock 540,000 - 125,000 = 415,000 common stock
37
Calc, the APIC balance?
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
Calc, the preferred stock report dividends in arrears on the financial statements?
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
On what date is working capital decreased?
It's decreased on "Date of declaration" because a current liability is increased
40
Are retained earnings affected on the payment date?
No it's not affected bc when dividends are declared Dividends payable is debited and cash account is credited
41
Are retained earnings affected on the date of declaration?
Yes Retained earnings are debited Dividends payable is credited
42
What affects does Dividends on the declaration of date for dividends?
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
Calc, the declaration date?
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
Calc, the retained earnings and shareholders equity?
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
Calc, the amount that should be reported as retained earnings using the cost method?
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
During the liquidating dividends what happens to additional paid in capital and retained earnings?
Additional paid in capital and retained earnings are both decreased during liquidating dividends bc when you liquidate dividends is to decrease contribution capital
47
When a corporation declares and distributed a property dividends, how is the excess carrying amount over the fair value reported?
Reported as reduction in operation income
48
Are retained earnings and APIC affected when there is a declared and paid liquidating dividends ?
Retained earnings is no affect however, APIC there is a decrease
49
Calc, the property dividends Retained earnings?
So the Fair Value is 78,000 - 18,000 gain = 60,000 Retained earnings Note the FAIR VALUE isn't the retained earnings
50
When a stock dividend is declared what happens to retained earnings?
RE is reclassified as contribution capital
51
Calc, the common stock issued and outstanding?
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
What are the general entries for the 5% stock affect additional paid in capital and retained earnings statement of equity?
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
Are there any entries receipts of stocks?
No entries are made
54
Declaration of stock dividends increases current liability?
No bc it's reclassified to equity
55
Calc, the aggregate amount that should be debited earnings for the stock dividends?
For the Fair Value 10% is 15,000 Par Value 28% is 30,800
56
Are retained earnings affected during declaration of stock split?
No and no entries are needed either
57
Calc, the common stock and Preferred Stock outstanding shares?
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
When is retained earnings decreased during the date of declaration or date of payment?
At the date of declaration when the RE is decreased
59
The par value method of accounting for treasury stock differs from the cost method because
it reverse the original entry to issue the common stock with any difference between carrying amount and purchase price adjusted
60
When stock right are issued for no consideration how is this recorded?
only in a memorandum entry is made
61
Calc, the retained earnings for the property dividends?
fair value of 78,000 - 18,000 gains = 60,000 decreases Retained earnings 60,000 Dividends payable 60,000
62
Calc, the amount of proceeds allocated to preferred Stock?
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
The right allowed the recipients to purchase unissued common stock for an amount in excess of par value. Common Stock will increase
with neither the rights are issued and rights lapse
64
Calc, the shares of common stock did rudd have outstanding?
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
Calc, the allocated preferred stock?
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
Calc, the preferred stock and common stock payable?
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
Are retained earnings affected when cash dividends are reported?
retained earnings aren't affected when dividends are paid out bc retained earnings are debited when dividends are declared
68
Calc the total liabilities for consolidated financial statements?
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
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Financial Accounting Reporting (25 decks)

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