F7

Question 1

Noncompensatory employee stock options

Answer 1

• No J/E until employee buys stock

- No compensation expense

Question 2

Fair value option for compensatory employee options

Answer 2

Determined with black-scholes method

Question 3

Vesting period

Answer 3

Grand date to the vesting date

Question 4

Compensation expense

Answer 4

Calculated on the grant date of options; allocated over the service period

Question 5

Compensation expense je

Answer 5

End of years
Dr. Compensation expense
Cr. APIC-stock options
Doesn’t change equity

Dr. Cash-strike price
Dr. APIC-stock options
Cr. Common Stock
Cr. APIC

Question 6

Expired options j/e

Answer 6

Dr. APIC-stock options

Cr. APIC-expired stock options

Question 7

Stock Appreciation

Answer 7

• multiply stock by difference in grant price and value at the end of the year then allocate over years then make J/e
  Dr. compensation expense
  Cr. liability
• in the last year remember that’s the compensation expense so it has to be what you recorded before minus that

Dr. Liability
Cr. Cash
After vesting period

Question 8

Stock Appreciation Formula

Answer 8

Total Compensation cost equals market price of he share on date of grant multiplied by number of restricted shares awarded. then allocate each year by service period

Question 9

Required financial statements for defined benefit pension plans

Answer 9

• statement of net assets available for benefits: B/S Assets
• statement of changes in net assets available for benefits: income statement
• statement of accumulated plan benefits: B/S Liabilities
• statement of changes in accumulated plan benefits: liability changes

Cash flows not required

Question 10

Accumulated plan benefit definition

Answer 10

Future benefit payments for employee service

Question 11

Book value per common share

Answer 11

Common shareholder’s equity divided by common shares outstanding

Question 12

Common stockholder’s equity formula

Answer 12

Stockholder’s equity
(Preferred stock outstanding at greater of call price or par)
(Cumulative preferred stock in arrears)
= Common shareholder’s equity

Question 13

Cumulative preferred stock

Answer 13

If dividends aren’t paid in a year they accumulate and must be paid in the future before dividends can be paid to common shareholders

Question 14

Participating preferred stock

Answer 14

Share equally then pro rata

Question 15

Cost method accounting

Answer 15

10,000 shares of $10 par sold for $15
Dr. Cash 150,000
Cr. C/S 100,000
Cr. APIC 50,000

200 Shares repurchased for $20
Dr. Treasury stock 4,000
Cr. Cash 4,000

100 shares repurchased at $20 are sold at $22
Dr. Cash 2,200
Cr. Treasury stock 2,000(100*20)
Cr. T/S APIC 200

100 shares repurchased for $20 sold at $13
Dr. Cash 1,300
Dr. APIC 200 from previous transaction
Dr. R/E 500
Cr. Treasury stock 2,000

Question 16

Par value accounting

Answer 16

10,000 shares of $10 par sold for $15
Dr. Cash 150,000
Cr. C/S 100,000
Cr. APIC 50,000

200 Shares repurchased for $20 - above issue buy back
Dr. T/S 2,000(20010)
Dr. C/S APIC 1,000(2005 from original APIC)
Dr. R/E 1,000 plug
Cr. Cash 4,000

200 Shares are repurchased for $12 - below issue buy back
Dr. T/S 2,000
Dr. C/S APIC 1,000
Cr. Cash 2,400
Cr. T/S APIC 600

100 shares repurchased for $20 sold for $22 - above
Dr. Cash 2,200
Cr. T/S 1,000 (100*$10 par)
Cr. C/S APIC 1,200

100 shares repurchased for $20 sold for $13 - below
Dr. Cash 1,300
Cr. T/S 1,000 (100*$10 par)
Cr. C/S APIC 300

Question 17

Treasury stock presentation Cost vs Par

Answer 17

For cost it is right before stockholder’s equity and for PAR is right after common stock at PAR

Question 18

Accounting for retirement of shares

Answer 18

calculate like par method

Question 19

Stock issued below PAR

Answer 19

Dr. Cash
Dr. APIC
Cr. Common stock

Question 20

Sale or subscription

Answer 20

Dr. Subscription receivable
Cr. C/S subscribed
Cr. APIC

Collection
Cr. Cash
Dr. Subscription receivable

Issuance of subscribed stock
Dr. C/S subscribed
Cr. Common stock

Question 21

Declaring dividend and paying it

Answer 21

Dr. Retained earnings
Cr. Dividends payable

Dr. Dividends payable
Cr. Cash

Question 22

Property Dividend accounting

Answer 22

PP&E should be restated to FV and gain or loss should be in income statement

Question 23

Declaring dividends

Answer 23

Small
Dr. Retained earnings-market value
Cr. C/S
Cr. Apic

Large
Dr. Retained earnings-PAR
Cr. C/s

Question 24

Liquidating dividend

Answer 24

It is the amount of cash dividend declared over the retained earnings so you would end up subtracting retained earnings from cash dividends

Dr. Retained earnings
Dr. APIC
Cr. Dividends payable

Question 25

EPS and discounted operations

Answer 25

Must be shown on the face or in the notes

Question 26

What kind of dividends are subtracted from Net Income for EPS

Answer 26

Dividends declared during the period on noncumulative preferred stock regardless if paid or not

Dividends accumulated during the period on cumulative preferred stock regardless if they have been declared

Question 27

Treasury stock method for Diluted EPS

Answer 27

• Multiply the number of options by the exercise price and divide by the market price then add to the denominator

Question 28

If converted method for Diluted EPS - convertible bonds

Answer 28

Numerator - multiply face amount by “1 - tax rate” then multiply by interest rate

Denominator - Divide face amount by value of each bond to get the number of bonds them multiply by conversion rate

Question 29

If converted method for Diluted EPS - convertible preferred stock

Answer 29

Numerator - add back deferred dividends

Denominator - Add conversion ratio

Question 30

Cash indirect method note

Answer 30

Net income
+ Losses
+ Amortization of bond discount because it is a loss and when you amortize it increases which makes net income go down
(Gains)
(Amortization of bond premium) - when bond is issued at premium it is a gain & when you amortize the premium it reduces interest expense which makes net income go up
(equity earnings)

Opposite of what happens to assets is what happens to cash
What happens to liabilities happens to cash

Question 31

Cash flow leases?

Answer 31

Interest is operating and principle is financing