F1 - M4 - Stockholders' Equity: Part 2 Flashcards
What is the transaction for stock that is issued above par value?
Cash will be debited for the proceeds which will increase assets
common or preferred stock will be credited which will increase equity
APIC will be credited for the excess over par
What is the transaction for stock issued at par?
Cash will be debited which will increase assets
common or preferred will be credited which will increase equity
No entry to APIC.
What is the transaction for stock issued below par?
This one is different since you have to record the common stock being issued at par. For that reason, you would debit cash
debit APIC for the loss
Credit common stock at it’s par value.
What is a stock subscription? What is the entry?
An agreement to sell a specified number of shares at an agreed upon price.
Once you get into this agreement, you cannot debit cash since no cash changed hands. Here is the entry:
Subscription receivable account is debited which is a contra equity account
Capital stock subscribed is credited
APIC is credited for any gain or premium they are willing to pay
Where is the one exception where the subscription rec would be considered an asset?
If they are paid after year end, but before the financial statements are issued. This will turn into an asset which will increase assets and equity.
Once you get paid the stock subscription, what is the entry?
Debit cash and credit subscriptions rec.
It is important to note, than when the buyer pays the stock subscribed at the full price, then we give stock certificates to those users. We got rid the credit subscriptions account but we have to get rid of the common stock subscribed account.
That would debit common stock subscribed at par, and credit common stock issued at par.
If the buyer default on a subscription, what is the corporations three options?
They can issue stock in proportion to the amount paid
Refund the partial payment
Retain the partial payment.
What are stock rights and what is the entry?
This is where you give existing shareholders the option to buy more shares. Normally to entice these shareholders, you give them an option to buy the shares at a price lower than the market price. For that reason here is the entry:
Debit Cash
Credit: Common Stock
Credit: Additional Paid in Capital
What is stock issued for outside services?
This is when you pay someone with stock instead of cash, and the value of the stock is measured at FMV. Here is the entry
Expense at FMV - Debit
Common stock at par - Credit
Additional paid in capital - Credit
Are dividends recorded in the income statement?
No they come out of retained earnings, and sometimes APIC if the state allows. That means you have nothing in RE.
What are property (In-Kind) dividends?
Distribution of non cash assets to shareholders, measured at the FMV of the property. Here is an example of an entry using property.
NBV of property is 30, FMV is 50
DR: RE for 50
DR AD for 40
CR PP&E for 70
CR Gain for 20
What is a scrip dividend, and what is the journal entry?
A scrip dividend is used when there is a cash shortage, and the corporation commits to paying the dividend at a later date. Here is the entry for it:
On the date of declaration they record:
DR: RE
CR: Notes Payable
What is a liquidating dividend?
This is when a dividend to a shareholder exceeds retained earnings. This means that the corporation does not have enough earnings to pay out the shareholder. When this happens here is the order of entry.
DR Retained earnings, and then paid in capital, and then common stock or preferred stock.
What is a stock dividend?
This is when you distribute your own stock to shareholders. To determine how much to reduce retained earnings buy, you need to know if it is a small stock dividend or large stock dividend.
Small would reduce RE by FMV
Large would reduce RE by Par
What is classified as a small stock dividend?
Small stock is less than 20-25%. This is calculated by dividing the stock dividend to the shares outstanding. Debit RE at FMV and credit common stock at par value. Any excess goes to APIC.
