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CPA > FAR7 > Flashcards

FAR7 Flashcards

1
Q

Par Value

A

Usually Preferred Stock is issued at par (common stock may or may not be)

Any excess over the par is APIC

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2
Q

Common Stock

A

Basic ownership interest in a corporation (ultimate risk of loss and receive ultimate benefit of success), right to vote and last in line for dividends at liquidation

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3
Q

Book Value per Common Stock

A

Common shareholder’s equity / CS outstanding

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4
Q

Common Stockholders’ Equity Formula

A

Total shareholders’ equity
- PS outstanding
- Cumulative Preferred dividends in arrears
= Common shareholders’ equity

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5
Q

Preferred Stock

A

May include preference relating to dividends, which may be cumulative or non-cumulative and participating or non-participating (may include preference relating to liquidation)

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6
Q

Cumulative PS

A

Accumulated amount is referred to as dividends in arrears (not a legal liability)

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7
Q

Participating PS

A

Share equally then pro rata between PS and CS

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8
Q

Convertible PS

A

May be exchanged for CS at a specified conversion rate

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9
Q

Callable PS

A

May be called at a specified price (disclosed in B/S footnotes)

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10
Q

Mandatorily Redeemable PS (liability)

A

Issued with a maturity date (must be brought back by the company on the maturity date)
= CS w/an unconditional redemption feature

Exception to classified as liability if occurs upon liquidation or termination

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11
Q

Retained Earnings

A

Accumulated earnings (or losses) during the life of the corporation that have not been paid as dividends

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12
Q

RE formula

A 
Net income (current year)
- Dividends (cash, property, stock) declared
\+/- Prior period adjustments
\+/- Accounting changes reported (retro)
\+ Adjustment from quasi-reorganization
= change in RE
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13
Q

Quasi-Reorganization

A

Is an accounting adjustment that revises the capital structure of a corporation (restates assets to their lower FV thus eliminating RE deficit) special purpose

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14
Q

Treasury Stock

A

Reduces SE (DR balance) issued then subsequently reacquired

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15
Q

Cost Method for Treasury Stock

A

Carried at their reacquisition cost (G/L determined at reissue) Losses may also decrease RE

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16
Q

Par Method for Treasury Stock

A

Carried at par value (G/L calculated upon buy back)

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17
Q

Date of Declaration

A

The date the board of directors formally approves a dividend
Dividend (retained earnings reduced)
Dividend Payable (liability created)

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18
Q

Date of Record

A

The date the board of directors specifies as the date the shareholders receive the dividend (No JE)

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19
Q

Date of Payment

A

The date on which the dividend is actually disbursed by the corporation
Dividend Payable
Cash

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20
Q

Cash Dividend

A

Paid from retained earnings (only paid on authorized, issued and outstanding stock)

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21
Q

Property (in-kind) Dividends

A

Restated to fair value at the declaration date and any gain or loss should be recognized in income (cost 70, A/D 20, FMV 100)
FMV 100
A/D 20
Bldg-cost 70
Gain 50 (FMV - book value)

22
Q

Stock Dividend

A

No dividend income reported by shareholder,

Cost basis decreases depending on the size (%) of the dividend in proportion to total shares outstanding

23
Q

Small Stock Dividend

A

Reduce RE by FMV stock (less than 20%)

24
Q

Large Stock Dividend

A

Reduce RE by Par of stock (more than 25%)

25
Q

Stock Split

A

Shares outstanding doubles and par (stated) value per share is cut in half (if 2-1 split), no change in stated capital

26
Q

Compensatory Stock Option

A

Valued at the fair value of the options issued (for matching principle)

27
Q

Vesting period

A

The period over which the employee has to perform services in order to earn the right to exercise the options (recognized over the service period = vesting period usually)

28
Q

Liquidating Dividend

A

amount in excess of retained earnings balance

29
Q

Date of the grant

A

Equity instruments issued for employee services based on the FMV of the award

30
Q

Total Compensation Expense

A

Market price of the share on date of grant

x # of restricted shares awarded

31
Q

Intrinsic Value of Call option

A

of shares options x (market price of the stock on the date of grant - exercise price)

32
Q

Compensation Cost

A

Recognized as an expense over the periods of employment attributable to the option

33
Q

Basic EPS Formula

A

Income available to common shareholders = Net income - Preferred Dividends
/ Weighted-average # of CS o/s “WACSO”

34
Q

Cumulative vs. Non-cumulative Preferred stock

A 
Cumulative = dividends accumulated in the period (paid)
Non-cumulative = dividends declared in the period
35
Q

Weighted average number of Common Shares outstanding (WACSO)

A

Shares outstanding at the beginning of the period
+ Shares sold during the period
- Shares reacquired during the period
+ Stock dividends and stock splits (retro adj.)
- Reverse stock splits (retro adj.)
= WACSO for the entire period

36
Q

WACSO: Stock Dividends and Stock Splits

A

Must be treated as if they occurred at the beginning of the period (retrospective for all periods presented)

37
Q

Complex Capital Structure

A

Report Basic and Diluted EPS if…

(i) Convertible securities
(ii) Warrants and other options
(iii) Contracts that may be settled in cash/stock
(iiii) Contingent shares

38
Q

Diluted EPS Formula

A

Income available to common stock shareholder + interest on dilutive securities
/ Weighted-average number of common shares, assuming all dilutive securities are converted to common stock

39
Q

Anti-dilutive

A

Options or warrants “out of the money” = antidilutive should not be reported
example: strike price > avg market price

Rule of conservatism

40
Q

Denominator (added) Diluted EPS Formula

A 
# of shares - [(# of shares x exercise price)/average market price]
= additional shares outstanding

of shares - (cash received/# of shares repurchased)

41
Q

Numerator (added) Diluted EPS Formula

A

Convertible Bonds:

Interest expense x (1 - tax rate)

42
Q

Earnings per share disclosure

A

Required for all companies with publicly traded common stock or potential CS/registration including:
Stock options, Stock warrants, Convertible securities, “Contingent stock” agreement

43
Q

Direct Method: Cash received from customers

A 
\+ Revenues
- Increase in receivables
\+ Decrease in receivables
\+ Increase in unearned revenue
- Decrease in unearned revenue
= Cash received from customers (increases cash)
44
Q

Direct Method: Cash paid to suppliers

A 
\+ Cost of goods sold
\+ Increase in inventory
- Decrease in inventory
- Increase in A/P
\+ Decrease in A/P
= Cash paid to suppliers (decreases cash)
45
Q

Direct Method: Cash paid to employees

A

+ Salaries and wages expense
- Increase in wages payable
+ Decrease in wages payable
= Cash paid to employees (decreases cash)

46
Q

Direct Method: Cash paid for other expenses

A 
\+ Other operating expenses
- Decrease in prepaid expenses
\+ Increase in prepaid expenses
\+ Decrease in accrued liabilities
- Increase in accrued liabilities
= Cash paid for other expenses (decreases cash)
47
Q

Indirect Method: Operating Activities

A 
Net Income per I/S "accrued inflow"
\+ Depreciation and Amortization (discount)
\+ Losses
- Gains and Amortization (premium)
- Equity earnings
Current Assets Increase: SUBTRACT
Current Liabilities Increase: ADD
48
Q

Investing Activities (Indirect and Direct Method)

A

Change in non-current assets (decreases total)

  • Increase = buy outflow “inverse”
  • Decrease = sell inflow
    1. All sums lent/repaid (principal only)
    2. Purchase/sale of noncurrent assets
49
Q

Financing Activities (Indirect and Direct Method)

A

Change in interest bearing debt and equity

  • Increase = inflows “direct”
  • Decrease = outflows
    1. All sums borrowed/repaid (principal)
    2. Issuance/repurchase of own company stock
    3. Dividends paid (not received)
50
Q

Supplemental Disclosures

A

Both (indirect and direct method):
1. Noncash Investing and Financing Activities
2. Accouting policy
Indirect: 3) Cash paid for interest/income taxes
Direct: 3) Reconciliation

51
Q

Operating Activities (direct method)

A
  1. Cash received from customers (+)
  2. Cash paid to suppliers/employees (-)
  3. Interest received (+) and paid (-)
  4. Dividends received (+)
  5. Purchases (-) and sales (+) of trading securities
  6. Income taxes paid (-)
  7. All other cash transactions not accounted for elsewhere

CPA (11 decks)

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