F7 Flashcards
What happens when the appropriation of retained earnings has been achieved?
Restored back to unappropriated retained earnings
What is the JE for of declaration of dividends?
Debit: retained earnings; credit: dividends payable
If no consideration is given, what is the journal entry to record issuance of rights?
No entry
For the purchase/sale of treasury stock, what do we do with the difference between stock price and cost?
Record as APIC. If this does not fully absorb the gain or loss, put remainder in retained earnings
What is the primary purpose of a quasi-reorganization?
Eliminate retained earnings deficit so future earnings will be available for dividends rather than limited to offsetting the retained earnings deficit
What is a liquidating dividend?
Dividend amount in excess of retained earnings balance
What amount and when is APIC credited?
Excess of proceeds over par value; at time rights are exercised
How and when are property dividends recorded?
Fair market value at the date of declaration
When is APIC decreased?
When retirement price is less then initial selling price
When stock is donated, what is the effect on stockholders equity?
No effect
When our stock options outstanding reduced?
At the exercise date
What is the journal entry for a stock dividend?
Debit: retained earnings; credit: common stock
With treasury stock transactions, do we change net income or retain earnings?
No
Do you treasury stock transactions result in gains or losses?
No - debit or credit to APIC
How do we calculate book value per share?
Common stockholders equity / common shares outstanding
When are equity instruments issued for employee services valued?
At the date of grant
When is compensation expense calculated? Allocated? Recognized?
Calculated at the grant date; allocated over the vesting period; recognized during the service period
Do you stock options have to be recognized to reflect compensation expense?
No
What is the impact of treasury stock on common stock?
No effect, treated separately as a reduction to equity
When treasury stock is resold, how is it regarded?
Outstanding
How is total compensation cost per year calculated?
(Market price of share on date of grant * number restricted shares awarded) / years of service period
How is the intrinsic value of options-based compensation calculated?
Number of shares of options * (market price of stock on grant date - exercise price of share option)
Calculate A/R turnover in days?
Average net receivables / (net credit sales / 365)
How do we calculate inventory turnover?
COGS / average inventory
How do we calculate total asset turnover?
Net sales / average total assets
How do we calculate average total assets?
Net sales / total asset turnover
How do we calculate A/R turnover?
Sales / receivables
With assumed conversions, which ones do we record?
Dilutive (decreases earnings per-share), not anti-dilutive
When can contingent shares enter into basic EPS calculation?
When dilutive
In computing WACSO (weighted average common shares outstanding), how do we treat stock dividends or stock splits?
Retroactively recognized for all prior periods presented entry as if it had occurred at the beginning of the year
What companies must include EPS disclosures?
Companies with publicly traded common stock or potential common stock or those who have filed with the SEC in preparation for sale of public securities
When our shares contingent?
When issuable for no cash consideration after occurrence of specified condition
What happens with cumulative preferred stock dividends?
Required to pay first before income is available to common shares
When computing basic EPS, how do we treat convertible securities?
Ignore them
What we do with interest expense on debt considered an EPS?
Add back to numerator
When computing diluted EPS, how do we treat convertible securities?
Only recognize if conversion is dilutive
How is EPS calculated?
(Net income - preferred dividends) / WACSO
When is a stock option out of the money? And are they dilutive/anti-dilutive?
Out of the money when exercise price > market price; anti-dilutive
How do we calculate additional shares outstanding?
Number of shares - [(number of shares * exercise price) / average market price]
To get income available to common stockholders, when do we deduct non-cumulative preferred stock and cumulative preferred stock dividends?
When declared in period; When accumulated in period
Under the indirect method of cash flow presentation, what goes in the supplemental disclosure?
Disclose cash paid for interest and income taxes
What are the three required disclosures of the statement of cash flow under U.S. GAAP direct method?
Major classes of gross cash receipts and gross cash payments, amount of income tax paid, and reconciliation of net income to net cash flows from operations
How to be record dividends paid in the statement of cash flows?
Outflow of cash from financing activities
Do we disclose cash flow per-share and statement of cash flow?
Nope
What is the primary purpose of the statement of cash flow?
To provide relevant information about cash receipts and cash disbursements of an enterprise during a period
How do we treat conversion of preferred stock into common stock?
Non-cash financing disclosure
In the statement of cash flow, how is the amount of equipment shown if it’s sold as a gain?
Cash inflow from investing activities equal to the caring amount of equipment plus the gain
How do we treat cash payments to reduce debt principal and cash interest payments?
Principal payment is financing activity; interest payment is operating activity
Under the indirect method, how should a gain on the sale of equipment be reported in the statement of cash flow?
Operating activity as a deduction from income
In the statement of cash flow, what are uses of cash and increases in cash?
Increase in assets and decrease and liabilities; decrease in assets and increase and liabilities
Under IFRS, how is interest received during a period reported in the statement of cash flow?
Operating or investing
Under IFRS how is interest paid during a period reported in the statement of cash flow?
Operating or financing
Under IFRS how is dividends paid during a period reported in the statement of cash flow?
Operating or financing
How is payment of interest on bonds classified in the statement of cash flow under GAAP? Under IFRS?
Operating; operating or investing
If we pay for a non-current asset with the cash down payment and take out a loan on the remaining portion, how is this record in the statement of cash flow?
Cash down payment is investing; remaining portion loan is financing
If paying amount, how do increases or decreases in assets and liabilities affect the statement of cash flow?
Increases in assets and decreases and liabilities increase cash flow; decreases in assets and increases and liabilities decrease cash flow
What is the journal entry to record a liquidating dividend?
Debit: retained earnings, APIC
Credit: cash (dividends payable)
When a property dividend is declared, what are we reduce retained earnings by?
Fair market value of asset
What do you stock dividends do?
Transfer fair market value of stock dividend at declaration date from retained earnings to capital stock and APIC
For a small stock dividend (less than 20% of shares outstanding), what amount is debited to retained earnings? What about a large stock dividend (greater than 25% of shares outstanding)?
Fair market value of shares; par value of stock
What effect do all treasury stock transactions have on total equity?
Decrease
What happens to book value per share when acquisition of treasury stock has a price less than fair value?
Increases book value per share
What is appropriated retained earnings?
Setting aside retained earnings amount for future purposes
How are dividends other than Cash recorded?
Fair market value at date of distribution
What do we do with proceeds from the basket purchase or sale of convertible preferred stock?
Allocate proceeds based on fair market value
What do we do if we acquisition price is less than or greater than original issue price?
Gain credited to APIC; lost debited to retained earnings
How do we calculate gain or loss on disposal of asset?
Fair market value - book value; positive = gain, negative = loss
When collectibility is reasonably assured, when is the excess of subscription price over stated value recorded as APIC?
When subscription is recorded
How do we treat stock dividends and splits?
Do not record as income, just reallocate investment account balance
How is compensation expense charge and when is it measured?
Over service period; Measured at grant date
If dividend is not declared, how do we report it?
Disclosure
What do each section of the statement of cash flows represent?
Operating: cash effects of light items that make up netting come
Financing: cash effects of borrowing or paying that debt and buying/selling the equity of the company
Investing: cash effects of non-current assets transactions (purchase and sale of fixed assets and investments and lending activities)
