Equity Flashcards
Stock Rights
When stock rights are issued without consideration only a memorandum entry is made
When rights are issued or exercise
Common Stock or APIC are not affected only if the rights are exercised and reduce equity by the amount of their cost.
RE are not affected by issuance or exercise of the rights
Acquisition of Treasury Stock
Acquisition of Treasury Stock under cost or par value method decrease the number of shares outstanding
Contribution of shares
Receipt of company’s owns shares as Acontribution are recorded as revenues or gains. They are recorded at FV and increase contributed capita and TS and they have not effect on equity
Par value method
When a stock is acquired using the par value method, TS stock is debited for the par value of the stock and reduce common stock and can reduce APIC and RE if the stock is repurchase for below the issue price
When the treasury stock is subsequently reissued for cash at a price in excess of its acquisition cost, the difference between the cash received and the carrying value (acquisition cost) of the treasury stock is credited to additional paid-in capita
Cost Method
Under the cost method the shares are debit for the full market price. Some transaction would affect total equity but not APIC
If reissued for higher price than the issue price any exccees is credit to APIC
Treasury Stock – Reissue
The par-value method treats the acquisition of treasury stock as a constructive retirement and the resale as a new issuance
Par value method when selling price exceed the cost the excess is credit to APIC
If the selling price is less than the par value, the debit APIC s the difference to retained earnings.
Restriction of retained earnings as a result of its treasury stock transactions
In some states RE are restricted by the cost of the TS
Stock dividends
Stock dividends are not recognized as income
Stock dividends distributable are reported in equity
Dividends on Preferred Stock
PS dividends are not recognized in the F/S, however they are disclosed. Dividends in arrears on PS are not obligations of the company
Contributions received from a non governmental entity
Are recognized as revenue or gains in the period of receipts. Contributed capital account is credit for the FV of the contribution
Stock Dividend Large Dividends
Small less than 25% of the total shares use market value
Large more than 25% of the total shares use par value
Impact of Stock dividends and stock splits
Stock dividends and stock splits increase the shares outstanding and decrease shares outstanding on a reverse split.
Stock dividends reduce RE
Stock dividends and stock splits do not have impact on SHE
Declaration of a stock split.
In a stock split, no journal entry is recorded and no retained earnings are reclassified
declaration and paiyment a liquidating dividend
The portion of the capital being liquidated affect APIC but does not affect RE
