FAR 15 - STOCKHOLDER'S EQUITY

Question 1

What is the book value method?

Answer 1

The book value method is for converting bonds into stock.

Question 2

How are gains or losses classified for bond conversions under the book value method?

Answer 2

There are no gains or losses on bond conversions. Any differences go to APIC.

Question 3

How do you calculate/measure “intrinsic value”?

Answer 3

Intrinsic value = market price (at the time options were granted) -exercise price (option price)

Question 4

How do you calculate book value per share of common stock?

Answer 4

divide total shareholder’s equity by the total number of shares outstanding

Question 5

Does a liquidating dividend results in a decrease in APIC or retained earnings?

Answer 5

A liquidating dividend is any dividend paid that exceeds the amount of retained earnings. For this reason, a liquidating dividend will decrease APIC rather than RE.

Question 6

Are dividends in arrears disclosed AND accrued?

Answer 6

No.

Dividends in arrears on preferred stock are disclosed but NOT accrued

Question 7

What entry is made when stock rights are issued without consideration?

What entry is made when stock rights are issued with consideration?

Answer 7

When rights are issued without consideration, no entry is made.

When rights are issued with consideration, usually compensation expense is recorded for the fair value.