Lecture 19 Flashcards
contributed capital
amount invested directly by owners thru acquisition of capital stock
retained earnings
past earnings (net assets) reinvested in firm
“temporary investment
common stock
basic ownership interest, conveys voting rights
shareholders bear majority of firm risk; claim to assets is residual (only exercisable after other claims have been satisfied)
authorized shares
max # of shares of CS that can be sold to the public based on the articles of the corp
issued shares
total shares sold to public
outstanding shares
issued shares owned by stockholders
treasury shares
issued shares that have been repurchased by the company
par value
stated value on each stock certificate; arbitrarily set
“CS” on the BS
APIC
diff b/w total amount the co receives when issuing stock and the par value
Cash dividends on CS
not legally required
creates liability @time of declaration
journal entry for declaration of cash divs
RE
Div Payable
journal entry for date of payment of cash divs
Div Payable
Cash
Preferred stock
right to receive dividends precedes CS rights (must be paid the full amount of their dividends before CS holders are paid)
amount of dividends to be paid is specified in the contract
dividend preference usually cumulative; when preferred dividends are unpaid = in arrears
when firm is liquidated, claim on assets of preferred shareholders > common shareholders
how is preferred dividend determined
preferred dividend = percentage of the PAR VALUE
stock splits
NO FORMAL JOURNAL ENTRY
after stock split, SE accounts are
unchanged
after stock split, firm must change
BS - # of shares and par value
stock dividend
declaring dividends in stocks, rather than in cash
shares outstanding increases #shares authorized and par value is the same
after stock dividend, total SE is
unchanged
stock dividend:
RE
CS
APIC
RE decreases, this amount is transferred to CS and APIC
large stock dividend
20% or more
based on PAR VALUE
journal entry for large stock div
RE
CS
small stock div
less than 20%
based on FAIR VALUE
journal entry for small stock div
RE
CS
APIC
reasons for stock repurchases
to temp hold shares for later use (grant as employee bonus)
artificial inflation of EPS
thwart takeovers
signal to market that firm is undervalued
treasury stock account
represents shares that have been reacquired by firm
contra-equity account
entry @purchase based on MARKET PRICE
reissuing treasury stock
diff b/w cash received and carrying amount (acquisition cost) affects APIC
if balance in APIC is insufficient, this affects RE
journal entry reissue for more than acquisition
Cash
treasury stock
APIC
journal entry reissue for less than acquisition
Cash
APIC
treasury stock
stock warrant
rights granted by firm to general investing public
shares granted were typically previously unissued
stock warrants & options
rights granted by firm to people to acquire shares of capital stock at a specified price over a specified interval of time
stock options
contract b/w firm and employees
options vest over some period of time
cannot be transferred, issued w/ an exercise price that equals market price on date of grant
journal entry for issuing warrant
cash
common stock warrants
journal entry for exercise of warrant
Cash
CS warrant
CS
APIC
journal entry for expiration of warrant
CS warrant
APIC
how to report stock options
record FAIR VALUE of options granted to employees as expense on IS
expense is amortized over vesting period
vesting period
period of time the employees must wait until they’re capable of exercising their rights
Fair value
current market value of the stock option
fair value of stock options determined by…
using either current market value or appropriate valuation model
rules for accounting for stock options
cost is allocated to expense over employee’s service period (usually vesting period)
when recording periodic expense, offset goes to PIC for options (equity account)
journal entry for recording stock options
[calculate yearly expense]
Comp exp
PIC options
if proportion of employees expected to stay at the firm changes, this will be recorded by….
- adjust for the previous years
2. record current year’s allocation of exp based on new retention rates
OCI
other comprehensive income:
foreign currency transactions
hedges
pension liabilities
unrealized gains and losses on certain investments
