FAR (4th Deck) Flashcards
The lessee should recognize amounts probable of being owed under a residual value guarantee as a component of lease payments
Lessee
On the commencement date of the lease.
What are some examples of Enterprise funds?
State and Local Government Concepts
Laws and Reg where cost of services are recovered through Fees and Charges
If you had a significant loss from a flodd that doesnt happen very often but it occurred after the F/S data and before the F/S was publised what type of subsequent even is it?
It is a type 2 event, not recognized in the same period and also because it is material is should be disclosed.
Under cost method, when is RE reduce as a result of a sale of treasury stock?
Equity
When the reissued price is less than cost, APIC is first reduced and then any remaining amount should be taking from RE. (As a reduction)
Flack Co. issued bonds with detachable stock warrants. Immediately after issuance, the aggregate market value of the bonds and the warrants exceeded the proceeds received. Is the portion of the proceeds allocated to the warrants less than their market value, and is that amount recorded as additional paid-in capital?
INTERPRET THIS QUESTION (the goal is to get your mind to think of how tricky questions can be.)
Equity
What the question is asking is if the proceeds received greater than market value, how is that proceed found? Also, what is it known as?
The Answer to finding that amount is Warrant allocation less the FMV. Also, the amount allocated is considered APIC.
Equity
On the declaration date (January 15), TWO things happen simultaneously:
- The company recognizes the property dividend at fair value ($25,000)
- They must also recognize any gain/loss by comparing: Fair value on declaration date ($25,000) vs Original cost ($20,000). This results in a $5,000 gain
Then these two amounts net together to determine the final impact on Retained Earnings:
- Property dividend: -$25,000
- Gain recognition: +$5,000
- Net reduction to RE: $20,000
Important: The fair values on February 1 ($26,000) and February 15 ($24,000) don’t matter - we only care about the fair value on the declaration date (January 15).
“What’s the difference between small and large stock dividends? (Include % cutoff and valuation method)”
Small Stock Dividend:
- Less than 20-25% of outstanding shares
- Recorded at FAIR VALUE
Large Stock Dividend:
- Greater than 20-25% of outstanding shares
- Recorded at PAR VALUE”
On May 18, Year 2, Sol Corp.’s board of directors declared a 10% stock dividend. On the same date, the market price of Sol’s 3,000 outstanding shares of $2 par value common stock was $9 per share. The stock dividend was distributed on July 21, Year 2, when the stock’s market price was $10 per share. What amount should Sol credit to additional paid-in capital for this stock dividend?
Equity
Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?
Equity
In this scenario, the 5% stock dividend and the 2-for-1 stock split are treated as if they had occurred at the beginning of year.
- The August stock dividend results in 2,500 (50,000 × 5%) additional shares issued as outstanding shares as of January 1 for a total of 52,500 (50,000 + 2,500).
- The September 2-for-1 stock split doubles the number of shares outstanding as of January 1, August 1, and December 31 to 105,000 (52,500 × 2) shares.
Equity
So in order to answer this question, it may look overwhelming however, if you know how to calc. for APIC or if you had understand (in Excerpt) that Treas. Stk is recorded at cost.
So you determine the APIC by ($50-26) x 3000 shrs = $42,000
Tres Stk = $36 x 3,000 = $108,000
Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s
**APIC Only! **
RE is not affected because once RE is $0, the remaining goes to APIC when dividend declared exceeds RE Total Amount.
Which partner has the largest capital?
- Algee contributed cash of $50,000.
- Belger contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted responsibility for the $35,000 mortgage attached to the property.
- Ceda contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value.
Equity
Equity
Understand that when the exercise price is > PAR it will always be an APIC increase, but RE are not affected.
At December 31, Year 1 and Year 2, Carr Corp. had 4,000 shares outstanding of $100 par value 6% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, Year 1, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in Year 2 totaled $44,000. Of the $44,000, what amounts were payable to each class of stock?
Order of Dividends payment
Understand that when PS Div are not paid in the previous year, it is considered div in arrears and must be paid first.
It states that 44k is payable, so out of the 44k 12k is in arrears, so the PS that is owed is actually 36,000 because we know that current month (4k x $100 x 6% = 24k + 12k = 26k)
CS is 8 because that is the other remaining payable amount of 44k - 26k PS = 8k CS payable.
Equity
On July 1, Year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis. What amount should Cove report for additional paid-in capital on the issuance of the stock?
This is a very good question to help you understand how to solve for APIC when the market value is not given.
When shares of Treasury stock are reissue/purchase/retired what happens to outstanding shares?
Equity
- Purchase Outstanding shares are reduced.
- Retired shares decreases outstanding shares.
- Sold, Outstanding shares are increased.
Authorized shares are N/A. No Effect or Changes.
Liquidating Dividends Facts
Equity
- Decreases RE, if > RE then decrease to 0 automatically
- Decreases APIC for anything > RE
Equity
What is purpose Quasi Reorganization?
Equity
A quasi-reorganization should not result in a write-up of net assets (eg, equity) and retained earnings must be zeroed out. Once the quasi-reorganization receives shareholder approval, readjustments are made.
- Generally, assets and liabilities are revalued to fair value, if required.
- The deficit in retained earnings is eliminated.
- Paid-in capital (ie, par value and/or APIC) is adjusted, but not below zero.
Book Value Per Common Share
Equity
