F7 Flashcards
What are the Journal Entries for the following (Par value method):
- Issuance over Par value
- Repurchase over issuance
- Reissued over repurchase
- DR: Cash (# shares * $/share issued at)
CR: Common stock (at par value)
CR: APIC - CS (difference) - DR: Treasury Stock (Par value)
DR: APIC (at the $/share from 1st entry)
DR: RE (plug)
CR: Cash (at cost of repurchase) - DR: Cash (at cost of reissue)
CR: TS (par value)
CR: APIC (plug)
What is a Liquidating dividend and how do you calculate the balance of the liquidating dividend?
Dividend liquidating to the extent that the dividend exceeds retained earnings
Dividend declared - RE
Does a stock dividend increase equity
No
How do you calculate the numerator of dilutive EPS?
Income available to CS + Interest of dilutive securities
Interest of Dilutive securities = ((Face value * Stated Rate) + Amortization) * 1-T
When are dividends reported as a liability?
When they are declared (Disclose if they are in arrears to the point of declaration)
What part of the Cash flows statement does a “Borrowing under a line of credit” go?
Financing inflow
When is Cash flow per share reported
NEVER
What is the calculation of additional shares o/s using the Treasury stock method? (use with options)
Number of Shares - ( (Number of shares * Exercise price) / Avg mkt price))
Where does an amortization of a bond discount go on the statement of cash flow? for indirect method
Cash flow from operations as an addition to net income
When is compensation expense recorded and for what amount?
Comp expense is recognized on the grant date and recognized over the service period
Comp expense is recognized regardless of whether it is exercised or not.
If the carrying amount is greater than the market value of a property dividend –> where is the loss recorded?
in income from continuing operations
Where does dividend paid go in the statement of cashflows?
financing outflow
What is the Je to recognize compensation expense?
DR: Comp expense
CR: APIC - stock options
What is the JE to record exercise of stock options?
DR: Cash (shares * price at grant date)
DR: APIC - stock options (reverse comp expense amount)
CR: CS (@ par value of shares exercised)
CR: APIC - excess of par (plug
If a corp sells its Treasury stock at a price that exceeds its cost - what is it recorded?
Credited to APIC
What is antidilutive?
higher than Basic EPS
What is the Je for a Stock dividend
DR: RE
CR: CS
CR: APIC
How do you calculate BV per share
Common SE
________________
Common Shares o/s
Are dividends paid on Treasury stock?
No
Where is the loss on treasury stock transactions debited to?
PIC to 0 and then any excess is RE
What statement is required in a defined benefit plan (4)
- Statement of Net assets available for benefits (BS - Assets)
- Statement of changes in NA Available for benefits (I/S)
- Statement of accumulated plan benefits (BS - Liabilities)
- Statement of changes in accumulated plan benefits (Liability changes)
Where are payments of principal and interest for debt on the statement of cashflows?
Principal is on Financing
Interest on in operating
What is the calculation for cash paid to suppliers?
COGS
- decrease in inv (beg > end)
- increase in AP (beg < end)
What is the difference between cumulative PS and non cumulative PS?
Cumulative PS will accumulate for any year that dividends are not paid (must be paid in future before CS holders) = dividend in arrears
Noncumulative –> if dividends are not paid –> no accumulation
What is the difference between participating PS and nonparticipating PS?
Participating PS has ability to collect excess dividends outside of just preferred dividends ( i.e they first get normal preferred dividends and then receive portion of CS dividends)
Non participating PS –> only limited to normal Preferred Dividend
When is the gain rec for treasury stock in cost vs par value method?
Cost is at the reissue
Par value is at the repurchase
**neither is included in NI –> changes in SE only
What are the Jes
Record sale of stock subscriptions
Collection of subscription
Issuance of stock certificate
Sale:
DR: Subscription receivable
CR: CS - subscription
CR: Apic
Collection:
DR: Cash
CR: Subscription receivable
Issuance
DR: CS subscribed
CR: CS (issued)
What is a stock subscription
agreement to sell specified # of shares @ agreed upon price on credit
What is in investing and financing part of cash flows
Investing = purchase of noncurrent assets, NCL
Financing = NP (int bearing),bonds, CS, paying dividends
What are the 10 steps in preparing the direct method of CFO?
- Cash rec from customer (Rev from IS + beg AR - End AR+ end Unearned - beg UR)
- Int received (beg inter rec + CY in - End RE)
- Dividend received
- Other cash receipts
- cash received from sale of TS
6 Cash paid from suppliers ( COGS - beg inv + end inv +beg AP - End AP)
Cash paid to employees (S&W expense + beg wages - End wages) - Int paid
- Tax paid
- cash paid to acquire TS
- Other op exp (prepaid, Accrued exp)
What type of dividends decrease RE
Cash and property
What amount are property declared and issued at
FV and reduce RE
What are the JE for Cost method
Issuance of stock above par
Buy back above issuance
Reissue above issuance
Initial:
DR: Cash
CR: CS
CR: APIC
Buy back:
DR: TS (@ repurch price)
CR: Cash
Reissue:
DR: Cash (@ reissue price)
CR: TS (@ repurch price)
CR: APIC - TS
What is the impact of decrease of current assets on operating cash flows (indirect
Increase cash
Where are 2 items in the indirect method not in direct from operations?
Depreciation and loss/gain on sale
What is the impact of purchasing treasury stock below book value on Stockholders equity and BV/share?
Decrease SE (as all treasury stock does)
Increase BV per share (reduces #cs o/s and SE –> decrease in denominator and numerator = increase overall)
What is the JE to sell TS less than cost?
DR: Cash
DR: APIC
DR: RE
CR: TS
How are dividends paid/rec shown on cash flows?
Dividends paid = financing outflow
Dividends rec = operating inflow
How do you calc the RE impact of a property divided?
- Calc the gain on declaring property divided (cost - property dividend @ FMV of date declared)
- Gain - Property dividend = net impact on RE
How do you calc stock appreciation rights?
It is the difference in stock price at grant date and date you exercise those rights
JE:
DR: Comp expense
CR: Liability on SAR
What is the JE to record a property dividend?
DR: RE (FMV of property)
DR: A/D of asset
CR: Asset @ cost
CR: Gain I/S
DR: Loss I/S
What is the threshold of small and large stock dividends?
Small is when less than 20-25% of shares o/s are distributed
DR: RE (# of shares * $FV)
CR: CS (@ par)
CR: PIC (Excess)
Large is greater than 20-25% of shares o/s distributed
- Declaration of stock dividend
DR: RE (Stock dividend * par value)
CR: CS distributable - When distribution of stock dividend:
DR: CS Distributable
CR: Capital stock
What is the impact of a small stock dividend on Retained earnings?
Decrease RE by % issued and outstanding shares * FV per share @ time of stock dividend
what does not have separate EPS disclosure and calc?
extraordinary items (no rec under GAAP)
Unrealized G/L on AFS securities (comprehensive income does not have sep EPS)
Under direct method - what is the impact of Depreciation exp/Gains for CFO?
no effect compared to indirect method
What is the calc for stock dividend on CS Outstanding for EPS?
- Take cumulative shares as of date of the * % stock dividend
- add to cumulative shares
What is the JE on the declaration of dividends to be paid and what is the impact on Working capital?
DR: RE
CR: Dividend payable
Decrease WC
When a bond is issued @ a discount –>
1. What is the CV in comparison to Face value?
2. What is the impact of amortization on the CV of the bond
3. What is the amount of int expense each pd
- Bond issued will be lower than face value (CV < FV)
- amortization of bond will bring the CV back up to face value
- int expense each pd will be increasing by a larger amount each pd
What is the entry for when treasury stock is issued
below cost?
DR: Cash
DR: APIC- TS
DR: RE
CR: TS
What basis of accounting does a defined contribution pension plan use in preparing F/S?
Accrual
What type of account is subscriptions receivable
Contra equity
What is the entry to record stock rights issued and stock rights exercised?
Issued = No entry
Exercised =
DR: Cash
CR: CS (par)
CR: APIC (excess)
What financial statement for defined benefit plans has the “change in actuarial assumptions”
Statement of changes in accumulated plan benefits
What are the required F/S for defined contribution pension plans
- Statement of Net Assets available for benefits (BS - Assets)
- Statement of changes in NA available for benefits (IS)
What is the difference between simple and complex capital structure and how EPS is reported? What if there is discontinued operations?
Simple = only Common stock outstanding –> only will report basic EPS on the face of the Income statement
Complex = have securities that can be potentially be converted to CS (convertible, warrants, options, contingent shares)–> must report basic and diluted EPS from continuing income on face of I/S
Discontinued ops –> must present basic and diluted EPS on the face ofIS OR in the notes to F/S
What is the calc for basic EPS
Income available to CS (NI - PD)
______________________________________
WACSO
How does the numerator for basic EPS impacted by noncumulative vs cumulative dividends?
If noncumulative –> PD in numerator = # of dividends declared
If cumulative –> PD in numerator = # of dividends accumulated (regardless if declared or paid)
What dilutive method used for options and warrants? When is it dilutive and antidilutive?
The treasury stock method - use the market rate
Dilutive –> avg Mkt price of CS > exercise price of option
Anti dilutive –> avg Mkt price of CS < exercise price of option
What is the dilutive method used for convertible securities (bonds or PS)
If-converted method = assumes securities were converted to CS at the beginning of the period
What is the impact of If converted method for convertible bonds on dilutive EPS?
- Add to numerator interest exp saved * (1-T) associated with conversion
- Add to denominator #of CS associated with the conversion
- If Dilutive EPS < Basic EPS –> then include. DO NOT INCLUDE ANTIDILUTIVE
What is the impact of the if-converted method for convertible preferred stock on dilutive EPS?
- adjust numerator (as if PS dividends do not affect NI)
- Add to the denominator assumed with the conversion
What is the JE to retire CS shares
DR: CS (retired shares *Par)
DR: APIC (retired shares @ excess amount issued)
CR: TS (TS @ cost of reaquired shares)
CR: APIC - TS (Cost issue - TS cost) *shares
What is the impact of a Stock Split (JE, Total Equity, Total legal capital)
No entry , no change in equity or capital. More shares, Par goes down
if stock plan is noncompensatory - what is the comp expense?
Nothing
