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FAR - 2024 > F1 - StockHolder Equity > Flashcards

F1 - StockHolder Equity Flashcards

1
Q

Stock Issued Above Par Value:

A
  1. cash will be DEBITED for proceeds
  2. Common Stock will be CREDITED(par value)
  3. APIC will be CREDITED for excess over par value
  4. RE not affected
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2
Q

Stock Issued at Par Value:

A

Cash DEBITED
Common Stock CREDITED

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3
Q

Stock Issued Below Par Value:

A

APIC will be DEBITED (to reflect discount)

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4
Q

Under the legal method(par) what is true:

A
  • apic is debited for losses when t/s stock is repurchased
  • BUT when their isnt enough to absorb loss we take from R/E (debited)
  • only gains in APIC are credited !!
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5
Q

Assume that treasury stock initially purchased for $1,000 is sold for cash of $600 and a $200 balance exists in additional paid-in-capital—T/S.

The journal entry would be:

A

Debit:
Cash
600

Additional paid-in-capital-T/S
200

Retained earnings
200

Credit:
Treasury stock
1,000

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6
Q

A property dividend should be recorded in retained earnings at the property’s:

A

Market value at date of declaration.

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7
Q

Pott Co. owned shares in Rose Co. On December 1, Pott declared and distributed a property dividend of Rose shares when their fair value exceeded the carrying amount. As a consequence of the dividend declaration and distribution, the accounting effects would be:

A

Use FMV of asset (not cost) to reduce retained earnings when property dividend is declared. The cost of asset will be adjusted to FMV (difference treated as “gain or loss on disposal of asset”) when a property dividend is declared.

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8
Q

A corporation declared a 10 percent stock dividend on 15,000 shares outstanding of $5 par common stock when the fair value was $10 per share. Which change in the corporation’s stockholders’ equity accounts is correct?
Whats the JE?

A

DR Retained earnings 15,000 (1,500 shares × $10/share fair value) - decrease when stock div
CR Common stock 7,500
CR Additional paid-in-capital 7,500

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9
Q

What is considered asset or capital distributions ?

A
  • liquidating div
  • stock splits
  • cash dividends
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10
Q

Net assets (stockholder equity) formula:

A

Assets - Liabilities

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11
Q

Common Stock Term:

A
  • basic ownership of stock(earnings after preffered shareholders)
  • voting rights only
  • carry all the RISK of LOSS
  • DONT PAY DIVIDENDS
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12
Q

Capital Stock term:

A
  • amount of capital that needs to RETAIN for the protection of lenders
  • if we borrow money make sure we have enough to pay back
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13
Q

What is par value and what does it affect?

A
  • is the nominal value of security
  • ANY EXCESS of the amount received over par goes to APIC
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14
Q

What is additional paid in capital?

A

reflects increases in capital assets in excess of par value(stated)

Face value < Excess over face value

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15
Q

Stock Authorized is…

A

stock that has been authorized to issue (sell) to the general public

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16
Q

Issued is (outstanding)..

A

stock that has actually been issued(sold) to general public

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17
Q

outstanding is…(owned)

A

the amount of capital stock in hands of the genera public(have been sold)

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18
Q

Preferred stock are

A

stock that takes priority over common share holders
(dividend distribution)

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19
Q

Cummalitive Preferred stock:

A
  • will accrue until it is paid
  • they accumulate over time
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20
Q

Noncummalitive Preferred stock:

A
  • doesnt accumulate over times
  • if you didnt receive distribution previous year you wont received that in the future periods
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21
Q

Participating preffered stock(2) is…

A
  • fully participating - particpate in excess dividends without limitations
  • partially participating - excess dividents but to a limited extent
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22
Q

Convertible preferred stock is..

A
  • stock that may be exchanged for Common stock at the option of shareholder at specific conversion rate
  • p/s turns to c/s
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23
Q

callable preferred stock is..

A

stock that may be called or repurchased at a specified price.

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24
Q

Cumulative preferred stock formula:

A

Total preferred shares x Par value x Dividend rate(%) = Annual dividend to preferred shareholdes
(if not distributed in current year then accumulate)

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25
Q

Mental Map for Cumalutive, Fully Participating, Preferred Stock Priority List:

A
  1. Distribution of preferred dividend in arrears(accumalated dividend) [Total preferred shares x Par value x Dividend rate(%)]
  2. distrbution of current period preferred dividends[Total preferred shares x Par value x Dividend rate(%) ]
  3. distribution of current period common dividend
  4. distribution of excess dividends in arrears, current p/s, current period c/s

Excess distribution allocated: -what percentage each stock gets from the excess)
P/S : (p/s outstanding / total stock outstanding) x excess amount
C/S: (c/s outstanding / total stock outstanding) x excess amount

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26
Q

Calculate Book value per common share (if they sold how much would they receive):

A

Common shareholder equity/ common share outstanding

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27
Q

Calculate common shareholder equity:

A

=Total shareholders equity - preferred stock outstanding- cumalitive prefferred dividends in arrears(accumulated)

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28
Q

Calculation of Retained Earnings:

A

Net income/loss - dividends delcared

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29
Q

What impacts Retained Earnings(our bank)?

A

Net income - Increases
Net losses - Decreases
Cash Dividends - Decreases
T/S transactions(par method) - Increases/Decrease

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30
Q

Appropriated R/E is…

A
  • R/E that has NO intention of distributed (dividend)
  • instead invest into growh of the company
31
Q

JE for R/E appropriated

A

DR - R/E unappropriated
CR- R/E appropriated

32
Q

T/S (contra acct) is what….

A
  • issued stock that has been repurchased(no longer oustanding)
33
Q

Reasons why we repurchase outstanding stock(T/S):

A
  • provide stock for employee compensation
  • prevent takeover
  • increase EPS
  • increase return on equity
34
Q

T/S journal entries usually in order:

A
  1. initial issurance of C/S
  2. reaquistion(purchas) of t/s
  3. reissuance fo t/s
35
Q

Accumulated other comprehensive income is a component

A

stockholders’ equity on the balance sheet(AOPIC)

36
Q

Stock holder equity increase(add) by:

A

net income = sales - expenses

37
Q

How to record treasury stock under cost method?

A

cost to repurchase

38
Q

How to record treasury stock under par method?

A

par value

39
Q

Reissue price > repurchase price
does what to the F/S ?

A

Increase APIC

40
Q

Reissue price < repurchase price
does what to the F/S ?

A

Decrease APIC & Excess decrease R/E (bc we need to borrow from it )

41
Q

Under Cost method:
Original Issue of C/S JE?

A

DR - Cash (#share x per share $)
CR- Common Stock (# share x $ par value of c/s)
CR - APIC [($per share -Par value) x # of shares]

42
Q

Under Cost method:
Repurchase of C/S JE?

A

DR - T/S ( # of shares x original cost of purchase)
CR - Cash

43
Q

Under Cost method:
Reissue of T/S JE?

A

DR - Cash ( # of shares x $ per share sold price)
CR- T/S (# shares x $ original purchase price)
CR - APIC [($ sold price - $ original purch price) x # of shares] (excess only)

44
Q

Under Par method:
Original Issue of C/S JE?(same as cost method)

A

DR-Cash
CR-Common stock
CR- APIC

45
Q

Under Par method:
Repurchased C/S JE?

A

DR -T/S ( # of shares x $ par value)
DR - APIC[($ sold price - $ original purch price) x # of shares]
DR - RE (plug)
CR -Cash (# of shares x purchase price)

46
Q

Under Par method:
Reissue C/S JE?

A

DR - Cash (# of shares x $ reissue price)
CR - T/S (# of shares x par value)
CR - APIC (plug in)

47
Q

Date of decleration is (cash dividend):

A
  • the date the dividends have formally been approved for distribution
  • the date in which a liability will be reported in F/S
  • board of directors say
  • Stockholders(r/e) go down and liabilities(dividend payable) go up
48
Q

Payment date is (cash dividend):

A
  • board of directors specify dividens that are actually distributed ( pay with cash)
  • Assets(cash) go down and Cash flow goes down
  • Liabilities (dividend payable) decreases
49
Q

Dividend payments (cash outflow) affects which type of financing sections?

A. Equity financing
B. Debt Financing
C. Operating section

A
  • Equity financing
  • only dividend received goes to operating section(cash inflow)
50
Q

Date of Decleration JE? (use cash dividend)

A

DR- R/E
CR - Div Pay

51
Q

Cash dividend NEVER impacts

A

Income Statement

52
Q

Date of payment JE?(cash dividend)

A

DR- Div Pay
CR - Cash

53
Q

Property Dividend does affect income statement on the date of:

A

Date of Decleration

54
Q

Property dividend uses FMV on the date of:

A

Date of decleration

55
Q

Property dividend JE on date of decleration?

A

DR - R/E (# shares x FMV)
CR - Dividend Payable

DR - Inv in stock [ (# of shares x orig. cost)-(# of shares x FMV)]
CR- Gain on investment(only if FMV is higher than cost)

56
Q

Property dividend JE on date of payment?

A

DR- Dividend Payable(same as date of decleration $)
CR- Investment in stock

57
Q

Scrip(Deferred ) Dividend is when it doesnt have enough cash (payable to be paid)
Whats the JE for date of decleration?

A

DR - R/E (#share x cost per share)
CR - Dividend Payable

58
Q

Scrip(Deferred ) Dividend is when it doesnt have enough cash (payable to be paid)
Whats the JE for date of payment?

A

DR - Scrip Dividends Payable
DR - Int Exp
CR - Cash

59
Q

Liquidating dividend JE for date of decleration?

A

DR - R/E (profits)
DR - APIC (plug diff)
CR - Div Payable (issued dividends)

60
Q

Stock dividends come from…

A

Distribution of our own stock

61
Q

Property dividends(securities) comes from…

A

distribution of other company stock

62
Q

Stock Dividend impacts what financial statement?

A

Stockholder equity - decreases

63
Q

What is a small stock dividend?

A
  • less than 20-25%
    = stock dividend distributed / total stock outstanding
64
Q

For stock dividend we always need to figure out first if its…..

A

small or large dividend

65
Q

What is a large stock dividend (par method)?

A
  • greater than 20-25%
    = stock dividend distributed / total stock outstanding
66
Q

How do we record a small stock dividend(fair market method)?

A

First thing is to find the # of shares to use = # of shares outstanding x stock % = new # of shares

DR - R/E (#of shares declared/distributed x FMV)
Credit - Common stock (#of shares declared/distributed x par value)
Credit - APIC

67
Q

How do we record a large stock dividend JE decleration(par method)?

A

DR - R/E (par value x # of shares declared)
CR - Common stock distributable

68
Q

How do we record a large stock dividend JE payment (par method)?

A

DR - Common stock distributable (par value x # of shares declared)
CR - Capital stock

69
Q

What does a stock split do?

A
  • increasing shares outstanding by multiplying
  • price per share decreases by dividing
70
Q

Example of stock split:

c/s 1000 shares outstanding @ $100 par value = 100,000

2:1 stock split

What happens afters stock split?

A
  1. Multiply the 2 from the stock split to # shares = (1000x@)= 2000
  2. Divide the 2 from stock split to the par value =(100 par / 2) = $50 par value
71
Q

Comparison of dividends and stock splits effects from the effects below?

  1. Effect on shares outstanding
  2. Effect on R/E
  3. Effect on total stockholders equity
A
  1. Stock Div = Increase
    Stock Split = Increase
  2. Stock Div = Decrease
    Stock split = no effect
  3. Stock div/stock split = no effect on both
72
Q

Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?

A

Step 1: we find the stock dividend - 50,000 shares x 5% = 2500 additonal shares are issued so
50,000+2,500= 52,500
Step 2: stock split was 2:1 we will $52500 x 2 = 105,000 common shares outstanding

73
Q

When finding the stock dividend usually that we add to ?

A

common shares outstanding as additional shares issued

FAR - 2024 (24 decks)

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