FAR - Financial Statement Acct - Owner's Equity Flashcards
number of common shares issued?
of outstanding shares + # treasury shares.
types of common stock rights.
- Voting;
- Dividend;
- Preemptive.
Define “legal capital.”
par value of the stock or the stated value of the stock issued.
Define “dividends in arrears.”
Unpaid dividends for a particular year on cumulative preferred stock.
number of shares in the Treasury determined?
number of shares purchased by the issuing firm and not yet reissued.
two main Owners’ Equity categories?
Earned + contributed
purpose does legal capital serve (par value stock)?
- Establishes minimum investment;
- Provides protection for creditors (dividends may not be paid from legal capital):
- dividends can’t be paid from here
- if no protection, mgmt. could liquidate by paying back shareholders
main types of businesses?
1) sole proprietors
2) partnerships
3) corps
What does Owner’s Equity represent?
Represents the residual interest in the net assets of an entity that remains after deducting its liabilities.
number of shares outstanding determined?
number of shares currently held by stockholders.
primary measurement basis for contributed capital?
historical value of direct investments made in the firm by investors.
types of preferred stock rights?
- Nonvoting;
- Dividend preferences;
- Liquidation preferences.
Define “authorized shares.”
total number of shares that may be issued.
List the major Owners’ Equity accounts for a corporation.
Listed in order of declining performance on the B/S
- Preferred stock;
- Common stock;
- Additional paid-in capital, preferred;
- Additional paid-in capital, common;
- Retained earnings;
- Treasury stock.
Treasury shares reduce the number of shares outstanding, and reissuance increases the number of shares outstanding?
Stock dividends and splits increase the number of shares outstanding on the date of distribution by the percentage effect implied by the dividend (%) or split (100% or multiply by 2).
True
outstanding stock?
stock held by public shareholder
Issued shares include outstanding shares and treasury shares. Treasury shares are issued but not outstanding. Stock splits are applied to all outstanding and treasury shares because a split reduces the par value of each share of issued stock, and increases the number of shares in inverse proportion.
true
classification of the stock subscriptions receivable account?
Contra owners’ equity (contra common stock subscribed) or as an asset.
journal entry to record initial payment of stocks sold on subscriptions.
DR: cash
DR: stock subscription receivable
CR: common stock subscribed
CR: contributed capital in excess of par
basis of allocation for stock basket sale proceeds?
FMV of stock in basket via 1) proportional method, or 2) incremental method
alternatives to par value when a stock does not have such value.
1) no par
2) stated value
stock issued for nonmonetary consideration valued?
FMV of stock or FMV of asset rec’d, more reliable figure
Define “par value”.
minimum legal issue price for capital stock in most states and appears on the stock certificate.
value is added to the contributed capital account when a no par stock has a stated value?
Contributed capital in excess of stated value (common).
journal entry for subsequent payments on stock sold on subscriptions.
DR: Cash
CR: Subscriptions Receivable
requirements for stock sold on a subscription basis.
- Specifying share price;
- Number of shares;
- Payment dates.
Any additional paid-in capital is recorded when the contract is signed, just as if cash were received at that point.
true
accounting treatment for the conversion of preferred stock?
- Preferred stock accounts are transferred to common stock accounts;
- If total preferred stock value is less than common stock par value, debit retained earnings.
3) no gain/loss on conversion
4) retire P.S. at Par, issue C.S. at Par
what amount is Preferred Stock Additional Paid in Capital debited when called or redeemed?
Amount recorded from original issuance.
Under what condition is retained earnings debited on conversion of preferred stock to common stock?
Total recorded value of preferred is less than par value of common on conversion.
accounting treatment for the retirement of preferred stock?
- All related Owner’s Equity accounts are removed;
- Debit differences go to retained earnings;
- Credit differences go to contributed capital.
When a firm retires preferred stock, cash is paid to the shareholders reducing total owners’ equity. Retained earnings can never be increased when shares are retired, redeemed, or converted into another class of stock.
True
J/E for called/redeemed P.S?
DR: P.S. (Par) DR: APIC P.S. (amount on original issue) DR: R.E. (if difference exists) CR: amount paid to call stock DR: APIC from retirement of P.S> (difference/plug)
How can retained earnings be affected by treasury stock transactions?
decrease as a last resort (never increase)
methods for accounting for treasury stock.
1) cost
2) par