F7

Question 1

Common stock: Residual ownership interest. Basic rights include: Voting rights, Dividend rights, Rights to share in distribution of assets if corporation is liquidated, after satisfaction of creditor and preferred stockholders’ claims

Answer 1

Stockholders’ Equity

Question 2

Convertible, callable, Redeemable, Dividends can be cumulative and/or participating

Answer 2

Stockholders’ Equity

Question 3

Assets are restated at fair value (no increase in asset value is permitted, write-downs are charged directly to retained earnings). Liabilities are restated at present value. Retained earnings brought to zero balance by closing to additional paid-in capital or other capital accounts. Remember to continue to date retained earnings for 3-10 years, as this is a departure from cost principle. No negative balance in any capital account.

Answer 3

Stockholders’ Equity

Question 4

Cost method: Unallocated reduction in stockholders’ equity. Par value method: Deducted from capital stock, Remember, no gains/ losses are recognized no the income statement; income and retained earnings may never increase by the transaction; Additional Paid-in Capital- Treasury Stock account used to record “gains” and absorb “losses.” Treasury stock is not an asset: cash and property dividends are not paid on treasury stock; stock dividends may be paid on treasury stock.

Answer 4

Stockholders’ Equity

Question 5

Recorded, carried, and reissued at reacquisition cost, Any “gain” is credited to Paid-in Capital -Treasury Stock, Any “loss” is charged against previous “gain”, then retained earnings, Reported as a deduction from total stockholders’ equity

Answer 5

Stockholders’ Equity

Question 6

Recorded at par value with excess to Paid-in Capital- Treasury Stock or deducted from retained earnings after charged to any Paid-in Capital -Treasury Stock. Reported as a deduction from capital stock

Answer 6

Stockholders’ Equity

Question 7

Date of Declaration: Becomes a liability and reduces retained earnings, Date of Record: No journal entry, memorandum entry only, Date of Payment: Actually paid.

Answer 7

Stockholders’ Equity

Question 8

Cash, Liquidating: Return of investment; Property: FMV of assets given up, with gains/loss recognized, Scrip: Promise to pay a dividend in future, Stock: Results in capitalizing part of retained earnings, increasing legal capital. Remember, if 20-25%, record at par value.

Answer 8

Stockholders’ Equity

Question 9

Small stock dividend: 20-25%; The treatment of stock dividends depends on the percentage of the dividend in proportion to the total shares outstanding prior to the declaration of the dividend.

Answer 9

Stockholders’ Equity

Question 10

Fair value of additional shares issued at the date of declaration is transferred from retained earnings to capital stock and additional paid-in capital.

Answer 10

Stockholders’ Equity

Question 11

Par value of additional shares issued is transferred from retained earnings to capital stock.

Answer 11

Stockholders’ Equity

Question 12

Rights and privileges of various securities outstanding, Number of shares issued upon conversion, exercise, or satisfaction of required conditions during at least the most recent annual fiscal period and any subsequent interim period presented, Liquidation preference of preferred stock, Redemption requirements related to redeemable stock.

Answer 12

Stockholders’ Equity

Question 13

Noncompensatory: Under U.S. GAAP, substantially all full-time employees may participate; offered equally or as a percentage of salary; reasonable exercise period; and discount is not greater than that offered to stockholders. Compensatory: Compensation cost is determined on the grant date, using an option pricing model. Note: Under IFRS, stock options are generally considered to be compensatory.

Answer 13

Stockholders’ Equity

Question 14

Compensation cost is based on the fair value of the equity instrument awarded, determined by an option pricing model. This cost is expensed and allocated over the service period.

Answer 14

Stockholders’ Equity

Question 15

Any balance in “additional paid-in-capital-stock options” is reclassified to “additional paid- in-capital-expired stock options.” Previously recognized compensation expense is not adjusted.

Answer 15

Stockholders’ Equity

Question 16

Income available to common shareholders divided by Weighted-average # of common shares outstanding

Answer 16

Earnings Per Share

Question 17

Basic: Simple capital structure (only common stock outstanding): Income available to common shareholders divided by Weighted-average common shares outstanding. Diluted: Complex Capital Structure: Income available to common shareholders assuming conversion of all dilutive securities divided by Weighted-average common shares outstanding after conversion of all dilutive shares.

Answer 17

Earnings Per Share

Question 18

Stock options and warrants and their equivalents, Convertible securities (bonds and preferred stock), Contracts that may be settled in stock or cash, Contingent issuable shares.

Answer 18

Earnings Per Share

Question 19

Any conversion, exercise, or contingent issuance that has an antidilutive effect (increases EPS or decreases loss per share) is not included in the calculation unless the shares have actually been converted, exercised, or satisfaction of the contingency met. Each potential common share is considered separately in sequence from most to least dilutive, with in the money options and warrants generally included first.

Answer 19

Earnings Per Share

Question 20

Face of income statements, with equal prominence for basic and diluted per-share amounts, for both income from continuing operations and net income. Per-share amounts for discounted operations and extraordinary items can be reported on the face of the income statement or in the notes to the financial statements.

Answer 20

Earnings Per Share

Question 21

Operating activities-cash flows from income statement transactions and current assets and current liabilities. Investing activities-cash flows from noncurrent assets. Financing activities-cash flows from debt and equity.

Answer 21

Statement of Cash Flows

Question 22

Cash equivalents: Cash equivalents are highly liquid investments with maturities of 3 months or less that are readily convertible into cash with insignificant risk of changes in value. Note: “Maturities of 3 months or less” is of original instrument or from purchase date of instrument.

Answer 22

Statement of Cash Flows

Question 23

Direct and indirect methods; Direct method is preferred

Answer 23

Statement of Cash Flows

Question 24

A reconciliation of net income to net cash provided by operations needs to be provided as a supplemental schedule. (Not required under IFRS.)

Answer 24

Statement of Cash Flows

Question 25

Current assets and liabilities, Losses and gains, Amortization and depreciation, Deferred items.

Answer 25

Statement of Cash Flows

Question 26

Cash received from customers, Cash paid to suppliers and employees, Interest received and paid, Dividends received, Purchases and sales of trading securities, if appropriate, based on the nature of purpose for which the securities were acquired, Income taxes paid.

Answer 26

Statement of Cash Flows