F7

Question 1

Summarize the Cost method for Treasury Stock

Answer 1

• Recorded at reacquisition cost
• Any “gain” credited to APIC – TS
• Any “loss” is charged again previous “gains”, then Retained Earnings
• Reported as a deduction from total SE

Question 2

List the 5 types of dividends

Answer 2

• Cash
• Liquidating: Return of investment
• Property: FMV of asset given up, with G/L recognized
• Scrip: Promise to pay in future
• Stock: Results in capitalizing part of RE, increasing legal capital. If 20% - 25%, record at par value

Question 3

What is the treatment of Large stock dividends?

Answer 3

Par value of additional shares issued transferred From retained earnings to Capital Stock

Question 4

Compare basic and diluted EPS

Answer 4

Basic: Simple Cap structure (Only CS O/S0
(NI – PD)/WACSO
Diluted: Complex
Income available to common shareholders assuming conversion/WACSO after conversion

Question 5

List the significant dates for Cash dividends

Answer 5

• Date of Declaration: JE: Liability and reduce RE
• Date of Record: No JE, memo entry only
• Date of Payment: Actually Paid

Question 6

Identify two types of stock options

Answer 6

• Noncompensatory: Under GAAP, substantially all employees may participate; offered equally or % of salary, reasonable exercise period, and discount no greater than what’s offered to stockholders
• Compensatory: Compensation Cost determine on grant using option pricing model (not FV of share of stock).

Question 7

Describe the accounting for unexercised, expiring stock options

Answer 7

Any balance in “APIC-Stock Option” is reclassed to “APIC – Expired stock option”. Previously recognized compensation expense not adjusted.

Question 8

What are the two alternative methods of accounting for treasury stock?

Answer 8

Cost method: Unallocated reduction in stockholders equity

Par value method: Deduct from capital stock

No G/L in I/S. I/S and RE never Increase. APIC – TS account used to record “gains” and absorb “losses”

Question 9

Summarize Par-Value Method

Answer 9

• Record at par value with excess to APIC – TS or deduct from RE after charged to any APIC-TS
• Reported as a deduction from capital stock

Question 10

Describe the adjustment of a quasi-reorganization

Answer 10

• Assets restate to FV (no increase permitted, writedowns direct to RE)
• Liabilities restate to Present Value
• RE brought to zero by closing APIC and other capital accounts
• Continue to show the date of adjustment to RE for 3-10 years
• No negative balance in any capital account

Question 11

Name common adjustments to CFO using indirect method (CLAD)

Answer 11

Current assets and liabilities
Losses and gains
Amortization and depreciation
Deferred Item

Question 12

What is the treatment of a small stock dividend?

Answer 12

FV of additional shares issued at date of declaration is transferred from RE to Capital Stock and APIC

Question 13

What is the Common Stockholder Equity formula for Book Value Per Common Share?

Answer 13

Total SE
- Preferred Dividend stock O/S
-Cumulative preferred dividends in arrears
=Common SE

Question 14

What is the formula to compute additional shares to add to WACSO for Diluted EPS for the Treasury stock method?

Answer 14

of shares issued x ((# of shares x exercise price)/avg market price) = additional shares to add to WACSO

Question 15

What must be taken out of income for convertible bonds in the IF-Converted method for Diluted EPS (What’s added to the numerator)?

What is NOT added to the Numerator for Convertible Preferred Stock?

Answer 15

1) Bond Interest x (1 – Tax Rate)

2) Preferred Dividends