Lecture 7 Flashcards
Stock dividend
stock dividend is not revenue. It increases the number of shares held and decreases the cost basis per share.
On what date should Rico decrease retained earnings by the amount of the dividend
The date of declaration is the date the board of directors formally approves a divided. A liability is created (dividends payable), and retained earnings is reduced (debited).
retained earnings vs APIC
ncome since incorporation equals unadjusted ending retained earnings (RE), that is, current year income is included; cash dividends is a direct deduction from RE on the date of declaration; property dividends are deducted from RE at market value on the date of declaration; the excess proceeds from the sale of treasury stock is considered additional paid-in capital.
issued shares
Treasury stock is included in issued shares but excluding from shares outstanding
Stages of cost method
- Initial entry
- Buy back
- Reissue(above or below)(gain=cr apic)
Loss=apic dr, or if no apic than RE
Cost method-timing of gain or loss
Reissued or retired
Losses - Cost method
Only losses in excess of APIC-Treasury Stock are booked to retained earnings.
Par value method-timing of gain or loss
Buy back
buy back
Dr treasury st
Par value method
- Initial entry
- Buy back
- Reissue
Buy back entry -PA
Treasury stock PAR
APIC same as initial entry
RE plug if applicable
Casj
stock issued rights without consideration
No entry is made when the rights are issued since no consideration is given. If the rights are exercised and stock is issued, then common stock and additional paid-in capital increase.
If common shares issued for other than cash
Use fair value of common shares to the accounting
fair value - par value*shares=APIC
Convertible preferred stock
Initial entry
Cash
Preferred stock
APIC
Converted
Pref stock
APIC P/z
Common shares
APIC -c/s
gain or loss on the purchase and/or sale of treasury stock
Rule: There is no gain or loss on the purchase and/or sale of treasury stock. Any “difference” goes to “paid-in capital,” or if there is not enough paid-in capital to absorb a loss, the loss would be debited (subtracted) from “retained earnings.”
quasi-reorganization
The primary purpose of a quasi-reorganization is to eliminate a retained earnings deficit so that future earnings will be available for dividends rather than limited to offsetting the retained earnings deficit. ARB 43 Ch 1A para. 2
Liquidated dividend
iquidating dividend (amount in excess of retained earnings balance).
Options grant ( end of year of grant date)
Note : NI dec,retain dec,equity dec and than decreases so no effect on equity
at end of year of grant date
Compensation expense FV allocated over service pe
APIC-Stock options
FV over service period, if granted and exercised in same year than no need to allocate. full fair value
Options exercised
Cash exercise price*shares
APIC stock options Take out from previous
Common stock Par
APIC Common stock plug
cumulative preferred shares
Rule: Cumulative preferred stock dividends are paid on par value (not sales price) of preferred stock and have a “preference” over common stock dividends until all past preferred stock dividends are paid.
Appropriated earnings
Rule: When the purpose of the appropriation has been achieved, it should be restored to unappropriated retained earnings.
Common and preferred stock
Common and preferred stock are recorded at the number of shares issued times stated or par value. Any excess is paid-in capital.
Retirement of treasury stock
Cost method
C/S
APIC
RE if applicab
Treasury shares
Par method
C/S
Treasury stock
Donated stock
$0 decrease in total stockholders’ equity due to donation of its own stock from a stockholder because there is no cost to the corporation
the stock options outstanding account should be reduced at the:
Stock options outstanding are reduced at the exercise date.
BV per c/S
Common SE/C/S outstanding
public entity required to measure the cost of employee services in exchange for an award of equity interest
Per SFAS 123 (ASC 718-20), equity instruments issued for employee services are to be valued at the date of the grant.
Participated preferred
9% cumulative preferred
apply 9% to both common and prefererred par value say this equuals to 9 and 18 = 27
relative cap is 9/27 * remaining div
Participating preferred stock splits dividend distributions with common shareholders only after the common shareholders have received percentage dividends equivalent to preferred shareholders. The remaining dividend is shared in relation to relative capitalization.
treasury shares
Treasury shares are shown separately as a reduction to equity, not as an adjustment to common stock at par
treasury shares
When treasury stock is resold, the stock is regarded as outstanding because after the resale, the stock becomes stock held by shareholders other than the corporation itself.
stock dive
A 30% common stock dividend would be classified as a large stock dividend by GAAP because the stock dividend is more than 20% to 25% of the previously outstanding shares. For a large stock dividend, retained earnings is debited for the par value of the additional shares issued. The stock dividend would be recorded as follows on the date of declaration by the board of directors:
Things to remember about the Cost method and PAR method
Timing of gain/ loss I.E APIC Treasury shares
Cost method - resold/reissued
PAR method-Buy back
Cost method-APIC CS only used in initial entry
PAR method- APIC CS used in every entry
