F7-Stockholders Equity, Cash Flows, Ratios Flashcards
Define Common Stock
Residual Ownership Interest
Common Stock Properties
- Voting Rights
- Dividend Rights
- Share in assets after creditors & PS holders
Preferred Stock Properties
- Convertible, callable
- Redeemable
- Dividends cumulative and/or participating
Two alternative methods of accounting for Treasury Stock
- Par Value Method
- Cost Method
Summarize Cost Method
- Recorded, carried, and reissued at reacquisition cost
- Any “gain” credited to PIC
- Any “Loss” charged against “gains” and then retained earnings
- Reported as a deduction from total Stockholders Equity
Summarize the Par Value Method
- Recorded at par value
- Excess to PIC - Treasury Stock, or
- Deducted from RE after charged to any PIC - Treasury
- Reported as a deduction from total Stockholders Equity
List the significant dates with respect to cash dividends
- Date of Declaration: Becomes a liability and reduces RE
- Date of Record: No JE, memorandum entry only
- Date of Payment: Actually paid
List 5 types of dividends
- Cash
- Liquidating: Return of Investment
- Property: FMV of asset given up, with G/L recognized
- Scrip: Promise to pay dividend in future
- Stock: increase legal capital. If < 20%-25% record at Market Value; if > 20%-25% record at Par Value
Threshold for treating stock dividends as Large vs. Small
Small < 20%-25%
Large > 20%-25%
Accounting treatment of small stock dividend
FV of additional shares issued at the date of declaration is transferred from RE to Capital Stock & APIC
DR: Retained Earnings 75,000
CR: Common Stock 50,000
CR: PIC 25,000
Accounting treatment of Large stock dividend
Par Value of additional shares issued is transferred from RE to Capital Stock
Record Declaration:
DR: Retained Earnings
CR: Common Stock Distributable
Record Distribution:
DR: Common Stock Distributable
CR: Capital Stock, $xx Par Common
Disclosure Requirements of Capital Structure
- Rights and Privileges of various securities
- Number of shares issued
- Liquidation preference of preferred stock
- Redemption requirements related to redeemable stock
Identify Two types of stock options
- Non-compensatory: All employees may participate, offered equally as a percentage of salary. Discount no greater than offered to stockholders.
- Compensatory: Compensation cost is determined on the grant date, using option pricing model.
IFRS: always compensatory
Describe the compensation and allocation of compensation expense under compensatory stock option plans.
- Cost based on FV of equity investment awarded, which is determined by option pricing model.
- Expensed and allocated over the service period.
Describe Accounting for unexercised, expiring stock options
Any balance in APIC - Stock Options is reclassified to APIC - expired stock options. Previously recognized compensation expense is not adjusted.
DR: APIC- Stock Options
CR: APIC - Expired Stock Options
What is the basic formula used for calculating EPS
Income available to common shareholders/Weighted Average number of common shares outstanding
Compare Basic and Diluted EPS
Basic: Simple Capital Structure
Diluted: Complex Capital Structure
Name the potentially dilutive securities or instruments
- Stock Options and Warrants and their equivalents
- Convertible securities (Bonds and PS)
- Contracts that may be settled in stock or cash
- Contingent issuable shares
What is the anti dilution rule
Rule of conservatism
- if increases EPS or decreases loss per share, do NOT include in the calculation.
- Each potential common share is considered separately in sequence from most dilutive to least, with options and warrants included first.
List the reporting requirements for EPS
- Face of Income Statement
- Equal prominence for Basic and Dilutive
- EPS for discontinue ops or extraordinary can be on the IS or in footnotes.
What are the 3 sections of the Statement of CashFlows
- Operating activities - cash flows from income statement transactions and current assets/liabilities
- Investing activities - cash flows from concurrent assets
- Financing activities - cash flows from debt and equity
Name the two methods of presenting cash flows from operating activities. Which method is preferred
- Direct
- Indirect
Direct is preferred
If using the direct method of cash flows, what additional information needs to be included
A recon of Net Income to Net Cash provided by operations needs to be provided as a supplemental schedule. (Not required under IFRS)
Name the common adjustments made to cash flows from operating activities using the indirect method.
CLAD Current assets and liabilities Losses and gains Amortization and depreciation Deferred items
Name the most common classes of cash receipts and disbursements included in cash flows from operating activities using the direct method
- Cash received from customers
- Cash paid to suppliers and employees
- Interest received and paid
- Dividends received
- Purchases and sales of trading securities (if appropriate)
- Income taxes paid
