F7

Question 1

Treasury stock cost method, when is the G/L calculated? Where is the gain recorded? loss?

Answer 1

when treasury stock is reissued. buy back JE is simply dr T-stock, cr cash.
Gain goes to APIC, not on the IS. see ex pg 10.
Loss, up to APIC amount can go into APIC. Any additional loss goes into RE (ONLY time treasury stock will effect RE).

Question 2

Treasury stock par value method, when is the G/L calculated?

Answer 2

when we buy back the treasury stock shares.

Question 3

Can treasury stock transaction affect RE?

Answer 3

ONLY if the treasury stock is reissued at a loss, & there is insufficient funds in PIC to absorb loss.

Question 4

Big co. declared a cash dividend on Jan 15 for year ended Dec 31. Dividend was paid Feb 9, & recorded Jan 28. What date should the decrease in RE be recorded? Whats the JE?

Answer 4

Cash dividends: is a direct deduction from RE on the date of declaration (Jan 15). Dr. RE (reducing), Cr. Dividends Payable (recognizing the liability to pay the cash div).

Question 5

what is the basic EPS formula?

Answer 5

Basic EPS = Income available to common SHs(NI-Preferred dividends)/ weighted-avrg number of common shares outstanding

what PDs get subtracted?

• dividends declared on non-cumulative preferred stock (irrelevant when paid)
• dividends accumulated on cumulative preferred stock (irrelevant when declared or paid)

Question 6

How do you find weighted-avrg number of common shares outstanding “WACSO”?

Answer 6

# shares outstanding at beg of period
\+ shares sold
- shares reacquired
\+ stock dividends/splits (retro)
- reverse stock splits (retro)

Question 7

When are options dilutive? antidilutive?

Answer 7

• If avrg price > excercise (strike) price, then dilutive

- if avrg (mkt) price

Question 8

cash flows:

if an operating asset increases, is that a buying or selling activity? outflow or inflow?

if an operating liability increases, is that a borrow or repaying activity? outflow or inflow?

Answer 8

Oper asset increases, buying activity, outflow

Oper liab increases, borrowing activity, inflow.

Question 9

how do you calculate net cash provided by operating activities?

Answer 9

operating assets and liabilities:

NI +depr/amort +Losses -Gains -Equity earnings +/- change in OPERATING assets +/- change in OPERATING liabilities = CFO

Question 10

what are cash flows from investing activities?

Answer 10

NONcurrent assets (up or down? thats it.):

making loans to others (cash outflow), purchasing/disposing of trading/AFS/HTM securities, acquiring/disposing of PPE

Question 11

what are financing activities for the stmt of cash flows?

Answer 11

debt, issuing/buying stock.

cash flows from NONcurrent liability & equity activitites

Question 12

what type of activity (stmt of cash flows), are cash flows from purchase/sale of noncurrent assets?

Answer 12

cash flows from investing activities