F7 Flashcards
J/E for issuance of PS
J/E for Conversion to CS
DR: Cash
CR: PS
CR: APIC- PS
DR: PS
DR: APIC - PS
CR: CS
CR: APIC - CS
Does contingent shares or stock options be used in basic earnings per share calculation?
Stock options- no
Contingent share- only if all conditions for issuance are met
Are shares issuable upon exercise of a stock option considered a contingent share?
No- Shares issuable upon the exercise of a stock option are not considered contingient shares as the option holder is required to pay the strike price to exercise the option.
What are the required disclosures of a statement of CF under the direct method
- The major classes of gross cash receipts and gross cash payments
- Amt of income taxes paid
- Reconciliation of NI to net CF from operations
J/E for gain on equipment sale
DR: Cash
DR: Accum Dep
CR: Gain
CR: Equipment
Book Value per Common Share Formula
= Common Shareholders’ equity / common shares outstanding
Common Stockholders’ Equity Formula
Total Shareholders’ equity
- Preferred stock outstanding (at greater of call price or par value)
- Cumulative preferred dividends in arrears
= Common shareholders’ equity
Retained Earnings Formula
Net Income/Loss
- Dividends (cash, property (FMV), and stock) declared
+/- Prior period adjustments
+/- Accounting Changes reported retrospectively
+ Adj from quasi-reorganization
= RE
J/E for Eliminating the deficit in RE - quasi-reorganization
DR: Common Stock
CR: RE
CR: APIC (plug)
Treasury Stock = Cost Method J/E
- Original Issue
- Buy Back Above issue Cost - contra equity
- Reissue Above Cost
- Reissue below Cost
Original Issue DR: Cash CR: C/S (# x Par) CR: APIC - C/S Buy Back Above Issue Price - contra-equity DR: TS (# X cost) CR: Cash Reissue Above Cost DR: Cash CR: TS (# x buy back cost) CR: APIC TS - (gain goes to APIC) Reissue Below Cost DR: Cash DR: APIC TS DR: RE CR: TS (# x buy back cost)
Treasury STock = Par Method
- Original Issue
- Buy Back above Issue Price
- Buy Back below issue Price
- Reissue Shares
Original Issue DR: Cash CR: CS (# x par) CR: APIC (# x (sold price - par)) Buy Back Above Issue Price DR: TS (# x par) DR: APIC - CS (# X (org price - par)) DR: RE CR: Cash (# x repurchase price) Buy Back Below Issue Price DR: TS (# x par) DR: APIC CS (# X (org price - par)) CR: Cash (# x buy back price) CR: APIC -TS “plug” Reissue Shares DR: Cash (# x reissue price) CR: TS (# x par) CR: APIC - CS “plug”
Dividends:
Date of Declaration:
Date of Record:
Date of Payment:
Date of Declaration- board approves dividend (a liability created and RE is reduced (debited))
Date of Record- No J/E
Date of Payment - dividend is actually disbursed
Accounting for stock issued to employees
~Noncompensatory
~Compensatory
~Noncompensatory Stock Options/Purchase Plans - No J/E till stock purchase
~Compensatory Stock Options - valued at FV of the options issued
Stock Options:
J/E to allocate compensation cost
J/E to record exercise of options
J/E to allocate compensation cost
DR: Compensation expense
CR: APIC - stock options
J/E to record exercise of options DR: Cash (# x strick price) DR: APIC - Stock options (reverse from above) CR: CS (# x par) CR: APIC in excess of par ( plug )
Basic EPS Formula
Basic EPS = Income available to common shareholders (NI - Preferred div) / Weighted avg # of common shares outstanding
Weighted Avg # of CS oustanding
Shares outstanding (beg of period)
+Shares sold during the period (on time-weighted basis)
- Shares reacquired during the period (on time-weighted basis)
+Stock Div and Stock Splits (retroactively adj) - pretend it happened at first of period
- Reverse Stock splits (retroactively adj)
= WACSO
Diluted EPS Formula
Diluted EPS = (NI - preferred div) - Interest on dilutive securities / WACSO-assuming all dilutive sec are converted to CS
Dilution from Options, Warrants, and their equivalents - no change to numerator
Treasury Stock Method Formula
Number of Shares - [( # of shares X exercise price ) / avg market price ]=additional shares outstanding
Dilution from Convertible securities (bonds or preferred stock)
Convertible Bonds
- Add to numerator => Interest Expense X (1-tax rate)
-Add to denominator => # of CS associated with conversion
What is the purpose of statement of CF?
Purpose : to learn why cash changed
What are the 2 methods of operating CF?
direct or indirect
What are included in Operating CF?
- Selling Products/ collecting receivables
- Purchasing inventory/Paying vendors
- Purchasing supplies and services/paying vendors
- Paying Taxes
- Purchasing/Selling Trading Sec (GR)
- Collecting interest on an investment
- Collecting dividends on an investment
What are included in Investing CF?
- Purchasing LT assets or LT investments for Cash
- Selling LT assets or investments (noncash equivalents and non-trading sec) - cash proceeds
What are included in Financing CF?
- Borrowing Funds (ie. Bank loans, issuing debt)
- Paying principal on debt
- Issue common or preferred stock
- Paying dividends on common or preferred stock
- Repurchasing stock (treasury stock)
What is not included in CF
- Recording dep, amort or depletion
- Recording income of equity method affiliates
Operating Activities (Direct Method)
- Cash received from customers
- Cash paid to suppliers and employees
- Interest received and paid
- Dividends received
- Purchases and sales of trading sec, if appropriate, based on the nature and purpose for which the sec were acquired
- Income taxes paid
- All other cash transactions not accounted for elsewhere
Operating Activities (Indirect Method)
- Record NI
- Adj NI for noncash items such as dep and the impairment of goodwill
- Reverse the income statement g/l shown on the sale of asset
- Adj for changes in current assets and current liabilities except for cash and accounts treated elsewhere in the statement
Current Assets Increase : Subtract
Current assets decrease: Add
Current Liabilities increase: Add
Current Liabilities Decrease: Subtract
What are the Asset and Liabilities added and subtracted for operating indirect method?
Current Assets Increase : Subtract
Current assets decrease: Add
Current Liabilities increase: Add
Current Liabilities Decrease: Subtract
Financing Activities
- All sums borrowed and/or repaid (principal amt only)
- Issuance and/or repurchase of own company stock
- Dividends Paid (not received)
Investing Activities
- All sums lent and/or repaid (principal only)
2. Purchase and/or sale of noncurrent assets (including FA, intangible assets and mark sec)
Working Capital Formula
Working Capital = Current Assets - Current Liabilties
Current Ratio (working cap ratio)
Current Ratio (working capital ratio) = Current Assets / Current Liabilities
Acid-Test / Quick Ratio
Acid-Test Ratio = (Cash Equivalents + Marketable Sec + Net receivables) / Current Liabilities
Cash Ratio
Cash Ratio = (Cash Equivalents + Marketable Securities ) / Current Liabilities
AR Turnover
AR Turnover = Net credit Sales / Avg Net Receivables
AR Turnover in Days
AR Turnover in Days = Avg net receivables / (Net Credit Sales / 365)
Inventory Turnover
Inventory Turnover = COGS / Avg Inventory
