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FAR > F7 - Pensions and Equity > Flashcards

F7 - Pensions and Equity Flashcards

1
Q

Amortization of “Prior Period Service Costs” (pension costs): Calculation

A

Amortized equally over the period of service to be provided (average service life of employees)

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2
Q

Pensions: Service Costs component of net periodic pension cost is measured using what?

A

Projected Pension Benefit Obligation

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3
Q

Net Periodic Pension Cost: Calculation

A

+ S: Service Cost

+ I: Interest Cost (Beg PBO x discount rate)

  • R: Expected Return on Plant Assets (Beg FV x
    Expected Rate of Return)

+ A: Amortization of Prior Service Cost ( /service life)

+/- G: Amortization of Gains/Losses

  • E: Amortization of transition asset

= Net Periodic Pension Cost

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4
Q

Minimum amount of unrecognized gain to effect pension expense: Calculation

A

Unrecognized Gain

  • (> of FV of plant assets or PBO (*10%) ) (as of BOY)

= Excess

/Average Useful life

= Minimum Recognized Amount

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5
Q

Actual Return on plant assets: Calculation

A

Beg FV

+ Contributions

-Benefits Paid

+Actual Return (typically the squeeze)

=Ending Fair Value of Plant Assets

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6
Q

Pensions: Gain/Loss on Plant Assets Calculation

A

(Actual return - Expected return)

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7
Q

Pensions: PBO at the end of the year

A

Beginning Balance

+Interest

+Current Service Costs

-Benefits Paid During the year

=Ending Balance

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8
Q

Past Service Cost Recognition: IFRS

A

Recognized on income statement in year of plan amendment

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9
Q

Pension Costs that flow to OCI include?

A

Unrecognized Prior Service Costs (net of amortization)
Unrecognized Transition Obligation
(Unrecognized Net Gain)

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10
Q

Amortization of Net Gain

A

Increases Retained Earnings

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11
Q

As plant assets increase what happens to a companies PBO?

A

It decreases (liabilities decrease)

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12
Q

End of Year entry to OCI for PBO:

A 
dr OCI  (for amount amortized)
     cr PBO
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13
Q

Funded Status of Pension Plan: Calculation

A

(FV of plant Assets - PBO)

NOTE:

FV of Plant Assets + (Contributions) - (Benefits Paid during the year) + (Return on Net Assets)

if PBO > FV of Plant Assets = Underfunded

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14
Q

Funded Status of Pension Plan: Recorded and shown where?

A

Balance Sheet (statement of financial position)

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15
Q

IFRS Pensions: AOCI, what flows here?

A

Gains/Losses from Remeasurement

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16
Q

Changes in the funded status of pension plan because of an amendment must be recorded where?

A

AOCI

Recording prior service costs - dr AOCI (decreasing it)

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17
Q

Post Retirement Health Benefits and Pension Costs should be accrued by when?

A

The employee is fully eligible for the benefits.

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18
Q

Required Pension Disclosures:

A
  • Components of period pension costs (SIRAGE)
  • Amount of unrecognized prior service cost.
  • Detail description of the plan
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19
Q

Which statements are allowed to be prepared but not required for Defined Benefit Pension Plans and Pension Plans?

A

Cash Flow Statement

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20
Q

Statement of Changes in Accumulated Plan Benefits includes what?

A

Impact of every factor that caused a change in the plan’s actuarial present value of plans benefit.

Include changes in:

  • Actuarial assumptions
  • Plan Amendments
  • Benefits paid to beneficiaries
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21
Q

Pension Expense and the Plan’s Funded Status are reported where?

A

Pension expense: I/S
Funded Status: Notes

Neither shown on any financial related to the plan

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22
Q

When are Stock Options O/S reduced?

A

Exercise Date

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23
Q

Equity instruments issued to employees for services should be valued when?

A

Date of grant

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24
Q

How is compensation expense relative to stock options recognized?

A

Options not exercised: Recognize the expense evenly over the service period

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25
Q

Total Compensation Expense: Caculation

A

(Market Price at Date of Grant * # of restricted shares awarded)

/# of service periods

NOTE:

If issued in two different years (4 period (semi-annual)) divide compensation expense for each year by 4 and add together for balance at YE of last year.

26
Q

Compensation Expense: JE (APIC = Plug)

A

dr Cash (shares granted * value of share granted)
dr APIC - Stock Option (compensation expense)
cr C/S (shares granted * par value)
cr APIC (PLUG)

27
Q

O/S vs Issued Stock

A

Shares issued - Treasury Stock = O/S Stock

28
Q

Treasury Stock and its effect on Retained Earnings: Cost Method

A

If Cost method is used and treasury stock is sold at price > acquisition price, retained earnings will not be effected.

29
Q

Treasury Stock Sold at price exceeding cost:

A

Difference goes to APIC

30
Q

Getting to NI and Retained Earnings:

A

Assets - Liabilities/SE = RE

Beg RE

+NI (typically the squeeze)

-Dividends Paid

=Ending RE

31
Q

When do dividends decrease RE?

A

When the dividend is declared

32
Q

When issuing stock what must be given in order for Common and APIC to be effected?

A

Consideration

33
Q

Preferred Stock Dividends:

A

Paid on Par Value (not sales price) and have a preference over common stock until all past preferred stock dividends are paid

34
Q

When you buy back stock and retire it at a price less than issue price what happens?

A

APIC decreases

35
Q

Net Income and Treasury Stock:

A

NI will never be affected by treasury stock transactions.

Gains/Losses are not allowed to be recognized

36
Q

Total RE: Calculation

A

Revenues

-Expenses

=Pre-Tax Income

-Tax Expense

=Net Income

+Beg RE

=Total RE

37
Q

Participating Preferred Stock Splits: Calculation

A

Total Capitalization for both classes of stock: (PV * shares)a

Multiply by preferred stock dividend rate:

=Dividends Total per class

Get % of preferred vs common (out of total): Relative Capitalization

= Undistributed subject to participation

+Dividends total per class

=Total per class

38
Q

Common Stock and Cost Method:

A

Common stock is shown on the balance sheet as:

-(Shares issued x $per share)

Treasury Stock is shown separately as a reduction to equity not an adjustment to common stock

39
Q

Total SE: Calculation (when Treasury Stock is included in Investments on the B/S)

A

Total SE =

SE - Treasury Stock from investments

40
Q

BV of common stock:

A

(Total SE - Preferred Stock Interests) / Total C/S Shares O/S

41
Q

PV vs Cost Method: Treasury Stock

A

JE:

Cost-

dr T/S  (acquisition price)
  cr      Cash   ("")

PV-

dr T/S       (pv)
dr APIC    (plug) 
  cr    Cash   (acquisition cost)

Thus: APIC is the only thing effected differently, decreasing

42
Q

Treasury Stock: NOTE

A

Always decreases SE.

When treasury stock is purchased. This decrease total shares O/S which would then increase BV per share (Total SE / CS O/S)

43
Q

Receiving preferred dividends for 2 years: How should they be recorded?

A

Income from continuing operations

NOTE:
-Even preferred dividends are not guaranteed so a receivable would not be necessary

44
Q

Convertible Preferred Stock:

A

Selling price is used to value stock

45
Q

Dividends in Arrears:

A

Disclosed in the F/S never reported as a liability.

Calculate it:

Total Dividends in Arrears =

(O/S dividends for multiple years (if needed) - Dividends paid)

46
Q

RE Appropriation does what?

A

Restricts the earnings available for dividends.

Dr “Unappropriated” RE
Cr “Appropriated” RE

47
Q

Liquidating Dividend:

A

Total Cash dividend

  • RE

=Liquidating Dividend

48
Q

Stock Dividends vs Cash Dividends:

A

Stock: Not recorded in income.

Cash: Recorded in income

49
Q

Net Effect of paying a dividend:

A

dr Retained Earnings
(dividend amount * PV)

cr Common Stock (@PV)

50
Q

Declaring a dividend: Effect on SE and RE

A

RE - decrease
SE - No effect (transfer from
RE to APIC and Capital
stock)

51
Q

Par Value of Common Stock Issued: Calculation

A 
Shares issued
\+Share Issued 
*2 (stock splits)
*PV (/2 if stock split)
=Total CS Issued
52
Q

Common Share O/S: Calculation

A

Original O/S Shares

  • Shares in treasury

+ Treasury Shares Sold

+ New shares Issued

x2 for stock split

53
Q

Treasury Stock: Cost Method

A

Include Re-issuance of stock at new price.

Re-issuance amount

  • Original Issuance

= APIC

54
Q

Small Stock Dividend:

A

<20% of shares O/S prior to the split.

-FMV of shares is capitalized from RE

55
Q

Difference between Shares issued and O/S

A

Issued: Doesn’t include the purchase/sale of treasury stock

O/S: includes treasury stock transactions

56
Q

Liquidating Dividend:

A

Company is returning a portion of capital originally contributed to the company in excess of RE.

Implies there is no RE. But still reduces it if RE still exist.

57
Q

Property Dividends: RE

A

2 things affect RE:

+/- Gain/loss on sale of property

Net of the FV of the dividend

58
Q

APIC: Calculation

A

(Issue Price - Par Value) * Shares issued

59
Q

No Par Common Stock (Subscribed): Calculation

A

Excess of subscription price over the stated value is recorded as APIC when the subscription is received (recorded).

60
Q

Cost of Stock Rights: Calculation

A

(FMV of rights) / (FMV of rights + FMV of stockex-rights) * Cost of Stock

61
Q

Cash Dividend Paid: Working Capital Impact

A

Working capital is decreased due to a dividend on “declaration date”

62
Q

Dividends Declared: Effect on O/S Shares

A

(%Dividend * Shares O/S)

+Shares O/S

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