F1M3&4 Flashcards
Stockholder's Equity
Book Value per common share formula
common shareholders’ equity / common shares outstanding
Common shareholders’ equity formula
total shareholders equity - preferred stock outstanding (at great of call price or par value) - cumulative preferred dividends in arrears.
With participating cumulative preferred stock, before any proration of dividends may exist, the common shareholders must receive an …..
equal divided as the preferred shareholders. So fully participating 8% cumulative preferred shareholders get 8% of the dividend first, then common shareholders get their 8%, then its shared pro rata based on par values.
Retained Earnings Formula
Net income (loss) – Dividends (cash, property, stock) declared +/- prior period adjustments +/- Accounting changes reported retrospectively.
Journal entry for when RE is to be appropriated
Debit: Retained Earning (unappropriated)
Credit: RE appropriated for [purpose]
Reverse this when the appropriation has occurred.
Treasury stock: Cost Method general information
Treasury shares are recorded and carried at their reacquisition cost. A gain or loss will be determined when treasury stock is reissued or retired. “APIC treasury stock” is credited for gains and debited for losses. Losses could potentially decrease retained earnings if APIC treasury stock account is not large enough to offset the loss. Net income or retained earnings will never be increased through treasury stock transactions.
Cost Method: Treasury Stock
Journal entry to repurchase shares at a greater price than issued
Debit Treasury Stock (repurchase price per share * # of shares)
Credit Cash
Cost Method: Treasury Stock
Journal entry to reissue (sell) treasury stock for more than it was repurchased for aka “above cost”
Debit Cash (resale price per share * # of shares)
Credit Treasury Stock (number of shares sold * price it was repurchased at)
Credit APIC Treasury stock (# of shares sold * (price treasury stock was resold for - price treasury stock was repurchased for)
Cost Method: Treasury Stock
Journal entry to reissue (sell) treasury stock for less than it was repurchased for aka “below cost”
Debit Cash (resale price * number of shares)
Debit APIC TS (to reduce the balance of it as much as possible from the loss for selling below cost)
Debit Retained Earnings (if the balance of APIC TS was not large enough to cover loss)
Credit Treasury stock (price stock was repurchased for * number of shares)
Par Method: Treasury Stock
General information
Treasury shares are recorded by reducing the amounts of par value and APIC received at the time of the original sale. “APIC treasury stock” is credited for gains and debited for losses. Losses could potentially decrease retained earnings if APIC treasury stock account is not large enough to offset the loss. The sources of capital associated with the original issue are maintained.
Par Method: Treasury Stock
Journal entry to repurchase common stock at a greater price than its issue price
Debit Treasury Stock (Par price common stock was originally sold for * number of shares repurchased)
Debit APIC Common Stock (original issuance gain per share * number of shares repurchased)
Debit Retained Earnings if APIC TS account has not been established yet (number of shares repurchased * (repurchase price – original Sale price))
Credit Cash (number of shares sold * repurchase price per share)
Par Method: Treasury Stock
Journal entry to repurchase common stock at a lower price than its issue price
Debit Treasury stock (number of shares repurchased * par price common stock was originally sold for)
Debit APIC Common Stock (number of shares repurchased * gain per share for the original issuance)
Credit Cash (number of shares repurchased * repurchase price)
Credit APIC Treasury Stock (number of shares repurchased * (price per share originally sold for – repurchase price per share))
Par Method: Treasury Stock
Journal Entry to reissue shares for more than repurchase price
Debit Cash (number of shares * resale price)
Credit Treasury Stock (number of shares * original par value at issuance)
Credit: APIC Common Stock (number of shares * (reissue price – original par value)
Par Method: Treasury Stock
Journal Entry to reissue shares for less than repurchase price
Debit Cash (number of shares * resale price)
Credit Treasury Stock (number of shares * original par value at issuance)
Credit APIC common stock (number of shares * (reissue price – original par value)
Treasury Stock: key reminder
par method: anytime the treasury stock account is touched it will always use the par value of the original issuance
Retirement of treasury stock
Journal entry for shares reacquired to retire at a greater value than it was originally sold for (cost method)
Debit Common Stock (number of shares * original par value)
Debit APIC Common Stock (number of shares * gain on original issuance)
Debit Retained Earnings (number of shares * (repurchase price – original sale price)
Credit Treasury stock (number of shares * repurchase price)
Retirement of treasury stock
Journal entry for shares repurchased to retire at a greater value than it was originally sold for (par method)
Debit Common stock (number of shares * original par value)
Credit treasury stock (number of shares * original par value)
Donated Treasury Stock
Journal entry to record donated stock at fmv
Debit Donated Treasury stock (at FMV)
Credit Additional paid-in capital (at FMV)
Donated treasury stock
Journal entry if the donated stock is sold
Debit Cash (sales price)
Debit APIC if sales price is less than FMV, Credit if sales price is greater
Credit donated treasury stock (at book value, or original FMV)
Stock Subscriptions to nonemployees
Journal entry for sale of subscription
Debit Subscriptions receivable (number of shares * sales price)
Credit Common stock subscribed (number of shares * par value)
Credit Additional paid in capital (number of shares * difference in sales price and par value)
Stock Subscriptions to nonemployees
Collection of subscriptions
When the subscription is paid, cash is collected and the subscriptions receivable is reduced.
Stock Subscriptions to nonemployees
Journal entry: Issuance of stock previously subscribed. So the subscription is satisfied and the stock needs to be issued and given
Debit Common stock subscribed (number of shares * par value)
Credit Common Stock (issued)
Stock Subscriptions to nonemployees
Default/forfeiture of a subscription
The terms of the subscription will identify the steps to move forward if not all subscription amounts have been received. Generally, the original entry is partially reversed and either: issue stock in proportion to the amount paid, refund the partial payment, or retain partial payment (as liquidated damaged for breach of contract) by a credit to APIC.
Stock Rights
Journal entry for the exercise of stock rights.
Debit Cash (amount received)
Credit Common Stock (par value)
Credit Additional paid in capital (residual value)