Equity Flashcards
Quasi-Reorganization
Purpose: Eliminate deficit in Retain Earning, Giving entity a fresh start.
1-Revalue asset & liabilities to fair value
2-Eliminate deficit in retained earnings
3-Net adjustment against paid-in capital, but not below zero.
Treasury Stock
Cost Method Vs Par Method
Cost method
*Gain/loss calculated upon reissue
Vs.
Par/Stated Method
*Gain/loss calculated immediately upon repurchase
Both Methods:
-Gain/Loss are recorded as a direct adjustment to stockholder equity.
-Never included in net income.
-Held Treasury Stock is not “outstanding”.
Accumulated Other Comprehensive Income (AOCI)
“ Put CF Hedges in the C U P
OCI Not recognized on net income (income statement)
Put CF Hedges -Derivatives
in the
(C)urrency transaction adjustment
(U)nrealized gain/loss on AFS Debt-Fair Value OCI
(P)ension Adjustments
Retained Earnings Formula
Net Income /Loss
-Dividends(Cash, property, & Stock) Declared
+/- Prior Period Adjustments
+/-Accounting Changes Report Retrospectively
=Retained Earnings
Current Year Change in Retained Earnings
+Beginning Retained Earnings
=Ending Retained Earning
Stockholder’s Equity Formula
C
P
A
R
A
T
Stock Equity(SE)=Total Asset - Total Liability
SE=Paid-up capital +Retained Earning-Treasury stock
Balance sheet -stockholder equity
(C)apital Stock (preferred stock, common stock)
(P)referred Stock
(A)dditional Paid-in Capital (APIC)
(R)etained Earning
(A)ccumulated OCI
(-)(T)reasury Stock
Noncontrolling Interest
=Stockholder Equity
APIC-Retired Stock
APIC-Retired Stock account from previous transactions, debit to retained earning would have been made to that account instead.
However, greater than the balance in APIC-Retired stock, APIC-Retired stock. Would be reduced to zero, remainder would reduce retain earnings.
SCRIP Dividends GL
-Common Promissory note, entity facing temporary cashflow will give scrip. To assure investor that dividend forthcoming.
Date of Declaration:
Dr. Retained Earnings XXX
Cr. Notes Payable XXX
Date of Payment:
Dr. Note Payable XXX
Dr. Interest Expense XXX
Cr. Cash XXX
Book Value Per Common Share
(Liquidation)
(total stockholder equity) - (amount due prefer stock)
=Common Stockholder Equity
Formula:
(Common Stockholder Equity)/(Common Share outstanding)
(Issued Shares)-(Treasury Stock shares)
=Common Share outstanding
Property Dividend GL
Date of Declarations:
Dr. Assets(FV-CV) XXX
Cr. Gain on Asset XXX “Up value”
Dr. Retained Earning (FV) XXX
Cr. Dividends Payable (FV) XXX
Date of Payment:
Dr. Dividend Payable (FV) XXX
Cr. Asset (FV) XXX
Appropriating Retained Earnings
-Do not Appropriate Retained Earning for bond retirement. Use cash sinking fund instead.
-Portion of retained earnings is unavailable for dividend payments.
-Used for specific business situations only, not for actual transaction.
-Shown on stockholder equity section
-Reasons due to legal/contractual reasons/covenant
-Not allow to absorb costs or losses
GL Entry
Dr. Retained Earnings (Unappropriated) XXX
Cr. Retained Earnings (appropriate purpose) XXX
Small Vs Large Stock Dividend
Small Stock Dividend:
-Less than 20-25%
-Record at FV at declaration date
Small Stock Entry:
DR. Retained Earning (FV) XXX
CR. Common Stock(Par Value) XXX
CR. APIC (FV-PAR) XXX
**Small dividend->RE goes down and APIC goes up(contributed capital)
Large Stock Dividend:
-Greater than 20-25%
-Record at PAR value
Large Stock Entry:
Dr.Retained Earning(Par Value) XXX
Cr. Common Stock(Par Value) XXX
**Large Dividend->Par Value -> Zero Retain Earning change
->Zero Stockholder Equity
change
**no effect on total stock equity
Liquidating Dividends
When dividend declared
-Balances of retained earnings prior to declaration
-Liquidating dividend, reduces APIC
Date of Declaration:
Dr. Retained Earnings XXX
Dr.Additional Paid-in Capital XXX
Cr. Dividends Payable XXX
Date of Payment:
Dr. Dividends Payable XXX
Cr. Cash XXX
Effect of Stock transactions on Issued vs. outstanding shares of stock
Issued Stock: Outstanding Stock:
Authorized Shares N/A N/A
Issued to stockholders Increases Increases
Stock Dividends Increases Increases
Stock Split Increases Increases
Repurchased Shares N/A Decreases
(Treasury stock)
Reissued Shares N/A Increases
(Treasury stock)
Retired Shares Decreases Decreases
(other than treasury stock)
Treasury Stock: Par Method
Step1:Calculate Gain or Loss;
Selling Price (-) Repurchase Price
Step2: Reverse Original entry for shares repurchased;
Debit Treasury at Par.
Step3: Credit Cash at price paid.
***Losses Decrease Retained Earning after exhausting APIC-Treasury Stock. Gains never increases Retained Earning.
Buyback shares above issue price entry:
Dr.(1) Treasury Stock(200X$10Par) $2000
Dr.(3) APIC-C/S $1000
Dr.(1) APIC-T/S $1000
(Or Retained Earning IF APIC-T/S not available)
Cr. (2) Cash $4000
**APIC only changes, Retained Earning no changes.
Buyback below issue price
Dr.(1) Treasury Stock(200X$10Par) $2000
Dr.(4) APIC-C/S(200X$5) $1000
Cr.(2) Cash(200X$12) $2400
Cr.(3) APIC-T/S $600
Treasury Stock: Cost Method
Repurchase Stock(Record at Cost):
Dr.Treasury Stock XXX
Cr. Cash XXX
**Gain/Loss when treasury stock reissued/ or retired
**Treasury stock gain/loss never affect net income stock only impact Stock equity.
Reissued at Price Greater than Cost:
Dr. Cash XXX
Cr. Treasury Stock XXX
Cr. APIC-Treasury Stock XXX
**Treasury stock is contra equity it reduces total stockholder equity
Reissued at Price Less than Cost:
Dr. Cash XXX
Dr. APIC-Treasury Stock XXX
Dr. Retained Earning** XXX
Cr. Treasury Stock XXX
!! No Gains or Loss Recognized for treasury stock
Retired the Stock:
Dr. Common Stock XXX
Dr. APIC-Common Stock XXX
Cr. Treasury Stock XXX
Cr. APIC-Treasury Stock** XXX
**No Effect on APIC or Retained Earning
