F7 Flashcards
Noncompensatory employee stock options
- No J/E until employee buys stock
- No compensation expense
Fair value option for compensatory employee options
Determined with black-scholes method
Vesting period
Grand date to the vesting date
Compensation expense
Calculated on the grant date of options; allocated over the service period
Compensation expense je
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
Expired options j/e
Dr. APIC-stock options
Cr. APIC-expired stock options
Stock Appreciation
- 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
Stock Appreciation Formula
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
Required financial statements for defined benefit pension plans
- 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
Accumulated plan benefit definition
Future benefit payments for employee service
Book value per common share
Common shareholder’s equity divided by common shares outstanding
Common stockholder’s equity formula
Stockholder’s equity
(Preferred stock outstanding at greater of call price or par)
(Cumulative preferred stock in arrears)
= Common shareholder’s equity
Cumulative preferred stock
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
Participating preferred stock
Share equally then pro rata
Cost method accounting
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
Par value accounting
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
Treasury stock presentation Cost vs Par
For cost it is right before stockholder’s equity and for PAR is right after common stock at PAR
Accounting for retirement of shares
calculate like par method
Stock issued below PAR
Dr. Cash
Dr. APIC
Cr. Common stock
Sale or subscription
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
Declaring dividend and paying it
Dr. Retained earnings
Cr. Dividends payable
Dr. Dividends payable
Cr. Cash
Property Dividend accounting
PP&E should be restated to FV and gain or loss should be in income statement
Declaring dividends
Small
Dr. Retained earnings-market value
Cr. C/S
Cr. Apic
Large
Dr. Retained earnings-PAR
Cr. C/s
Liquidating dividend
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
EPS and discounted operations
Must be shown on the face or in the notes
What kind of dividends are subtracted from Net Income for EPS
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
Treasury stock method for Diluted EPS
- Multiply the number of options by the exercise price and divide by the market price then add to the denominator
If converted method for Diluted EPS - convertible bonds
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
If converted method for Diluted EPS - convertible preferred stock
Numerator - add back deferred dividends
Denominator - Add conversion ratio
Cash indirect method note
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
Cash flow leases?
Interest is operating and principle is financing
