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Becker FAR > FAR 7 > Flashcards

FAR 7 Flashcards

1
Q

Major Components of Stockholder’s Equity

A
  1. Capital stock
  2. APIC
  3. Retained earnings or deficit
  4. AOCI
  5. Treasury stock
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2
Q

Common stockholders’ equity formula

A

Total shareholders’ equity
- Pref stock outstanding ( at greater of call price or par)
- Cumm preferred div in arrears
= Common shareholders’ equity

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3
Q

BV per common share formula

A

Common SE equity/ Common shares outstanding

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4
Q

Cumulative preferred stock

A

All or part of pref div not paid in any year accumulates b/f div can be paid to common shareholders.

Also called dividends in arrears

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5
Q

Participating Pref Stock

A

Provides that pref SE share with common SE in dividends in excess of a specific amount.

“Share equally then pro rata”

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6
Q

Examples of transactions including APIC

A
  1. Sale of treasury stock at a gain
  2. Quasi-Reorg
  3. Issuance of liquidating dividends
  4. Conversion of bonds
  5. Declaration of small stock div
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7
Q

Retained Earnings Formula

A 
Net income/loss
- Div (cash, property, stock) declared
\+/- prior period adjustments
\+/- accounting changes reported retrospectively
\+ adjustment from quasi reorg
= RE
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8
Q

Quasi Reorg - Summary/Purpose

A

Accounting adjustment, eliminate deficit in RE, “fresh start”.

Restate overvalued assets to their lower FV (reduce depreciation) eliminate RE deficit

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9
Q

Quasi Reorg- Procedures

A

Revalue assets to current FV and liabilities to PV (no net increase in asset value permitted, write-down charged to RE.

Bring RE to zero against APIC

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10
Q

Quasi Reorg - J/E to eliminate deficit in RE

A

Dr. Common stock
Cr. Retained Earnings
Cr. APIC

In essence, you will reduce APIC by lowering par value of common stock to wipe away RE deficit.

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11
Q

2 Methods of Treasury Stock Accounting

A

Cost Method - majority of time used

Legal or Par/Stated Value Method

Direct adjustment to SE not included in determination of NI

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12
Q

Treasury stock - cost method

A

Treasury stock recorded and carried at their re-acquisition cost. Gain/Loss determined when treasury stock is reissued or retired. Never hits NI.

Ex: Reissue above cost

Dr. Cash
Cr. Treasury stock (qty x buy back price)
Cr. APIC (difference b/t buy back price and sale price)

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13
Q

Treasury stock - Legal Par/Stated Value Method

A

Reduce amounts of par value and APIC received at time of original sale.

Ex: Buy back above issue

Dr. Treasury stock (qty x par)
Dr. APIC (same rate as when sold)
Dr. RE (only if no balance in APIC)
Cr. Cash

Ex Buy back below issue price

Dr. Treasury stock (qty x par)
Dr. APIC (same rate as when sold)
Cr. Cash
Cr. APIC - T/S

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14
Q

Sale of subscriptions J/E & Issuance of Stock Previously Subscribed J/E

A

Dr. Subscriptions receivable
Cr. Common stock subscribed
Cr. APIC

Dr. Common stock subscribed (use par)
Cr. Common stock (issued)

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15
Q

Exercise of Stock Rights

A

Dr. Cash
Cr. Common stock (par value)
Cr. APIC (residual)

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16
Q

Dividend Date of Declaration

A

Date board of directors formally approves dividend.

Dr. RE
Cr. Liability (dividends payable)

17
Q

Liquidating Dividends

A

Occur when dividends to SE exceed RE. Dividends in excess of RE first debited to APIC and then to common or pref stock.

Reduce total PIC.

18
Q

Treatment of Small Stock Dividend

A

< 20%-25% of shares previously outstanding, transfer from RE to common stock & APIC

Dr. RE (# of shares x FMV)
Cr. Common stock
Cr. APIC

19
Q

Treatment of Large Stock Dividend - > 20-25%

A

J/E at declaration

Dr. RE
Cr. Common stock distributable (use qty x par)

J/E to record distribution

Dr. Common stock distributable
Cr. Capital stock, par

20
Q

EPS - Income Available to Common Shareholders Formula

A

Net income

  • div declared on non-cumm pref stock (regardless if paid)
  • div accum on cumm pref stock (regardless if declared)
21
Q

Basic EPS Formula

A

Income available to common shareholders/

Weighted avg # of common shares outstanding

22
Q

Stock dividends & splits regarding weighted average common shares outstanding

A

Must be treated as though they occurred at the beginning of the period.

If occurs after end of period but b/f FS issued, retroactively state as well.

23
Q

Diluted EPS Formula

A

Income available to common stock shareholders + interest on dilutive securities/

WA # of common shares, assuming all dilutive securities are converted to common stock

24
Q

Dilutive Effect on weighted average common shares

A

Only dilutive when “in the money”

Difference b/t # of shares assumed issued and # of shares assumed to be purchased with proceeds should be included in # of shares (denominator) for diluted EPS.

25
Q

Diluted EPS and formula to computer additional shares for options & similar instruments (denominator)

A

Number of Shares -

of shrs x exercise price/ avg market price

= additional shares outstanding

26
Q

Convertible Bonds - Dilution

A

if converted method, assumed converted to common stock at beginning of period or at the time of issue if later

Add to numerator (income)- interest expense, net of tax, due to the assumed conversion of bonds to common stock - basically as if it did not happen

27
Q

Antidilution

A

Use results of assumed conversion only if diluted. Each potential dilutive security used separately in determining dilution or antidilution.

Tests for dilutive or antidilutive effects based on income from continuing operations

Diluted EPS > Basic EPS, antidilutive, DO NOT USE

28
Q

Convertible Pref Stock & Dilution Calculation

A

Does not affect numerator but does affect denominator

29
Q

Categories of Statement of Cash Flows

A

Operating - Income Statement, CA & CL excluding current notes payable and current portion of L/T debt

Investing - Inv Securities & Noncurrent Assets

Financing - Noncurrent liabilities & Equity

30
Q

Similarities & Differences between Direct & Indirect Method related to SCF

A

Presentation wise….

Operating activities differ

Investing & Financing activities are the same

31
Q

Direct Method

A

Non-cash items such as depreciation, amortization, depletion, and income from affiliates under the equity method do not appear in direct method operating cash flow.

32
Q

Relationship of Assets, Liabilities, Equity to operating cashflows- Indirect

A

Assets = Inverse relationship

Assets increase = outflow
Assets decrease = inflow

Liabilities & Equity = Direct relationship

Liabilities & Equity up = inflow of cash
Liabilities & Equity down = outflow of cash

33
Q

Direct Method - Cash Received from Customers

A

Report separately-

Assets- inverse
liabilities - direct

Revenues
- Increase in receivables
\+ Decrease in receivables
\+ Increase in unearned revenue
- Decrease in unearned revenue
= Cash received from customers
34
Q

Direct Method - Cash paid to suppliers (outflow)

A

Assets - direct,
Liabilities - inverse

COGS
\+ increase in inventory
- decrease in inventory
- increase in A/P
\+ decrease in A/P
= Cash paid to suppliers
35
Q

Direct Method - Cash paid to employees

A

Liabilities - inverse

Salaries & Wages Expense
- increase in wages payable
+ decrease in wages payable
= Cash paid to employees

36
Q

Indirect Method - Short - Cut Cash Flow Effects

A

Changes in debit balance accounts = inverse relationship

Changes in credit balance accounts = direct relationship

37
Q

Indirect Method - Gains/Losses in Ops Activities

A

Gains - Usually out of ops to investing

Subtract from net income

Losses - Usually out of ops into investing

Add to net income

38
Q

Items to remember are included in operating cashflow

A

Collecting interest on an investment
Collecting dividends on an investment
Paying interest on debt

39
Q

IFRS Differences on cash flows

A

Transaction - mainly more tied to source, more options

Interest Received-  CFO or CFI
Interest Paid - CFO or CFF
Div Received - CFO or CFI
Div Paid - CFO or CFF
Taxes Paid - CFO, CFI, CFF

Becker FAR (12 decks)

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