M6 - Stockholder's Equity: Part 2 Flashcards
True or False: Receipt of a stock dividend is not revenue. It increases the number of shares held and decreases the cost basis per share.
True
The date of declaration is the date the board of directors formally approves a dividend. A liability is created (dividends payable), and retained earnings is reduced (debited). True or false
true
It is not at year end or the date of record and not on the dividend payment date.
The dividend payment date, the liability (dividends payable) is reduced (debited) and the cash payment is recorded. (credit to cash).
No entry is made when the RIGHTS are issued since no consideration is given. (true or false)
True
If the rights are EXERCISED and stock is ISSUED, then common stock and additional paid in capital would increase.
The exercise of rights has no effect on net income
What is a liquidated dividend?
Its the amount in excess of retained earnings balance.
The total Dividend Declared (Less Retained Earnings) ----------------------------------------- Liquidating Dividend ========================
The dividend is a liquidating dividend to the extent that the dividend exceeded retained earnings.
Does a stock dividend produce income for the recipient?
No, it just increases the number of shares outstanding
Property dividends are deducted from Retained Earnings at (FV or Market value) on the date of declaration?
The property’s Market Value
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. (true or false)
True
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. (true or false)
True
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:
DR: Retained Earnings (PAR VALUE)
CR Common Stock To Be Distributed
A stock dividend that is less than 20% or 25% of the previously outstanding shares would be regarded as a small stock dividend. (True or false)
True
A stock dividend that is less than 20% or 25% of the previously outstanding shares would be regarded as a small dividend. If the transaction was regarded as a small dividend rather than a large dividend, the stock dividend would be recorded as follows on the date of declaration by the board of directors:
DR: Retained Earnings (FMV)
CR: Common Stock (PAR VALUE)
CR: APIC from stock dividend
Use FMV of asset (not cost) to reduce retained earnings when property dividend is declared. The cost of asset will be adjusted to FMV (difference treated as “gain or loss on disposal of asset”) when a property dividend is declared. Retained earnings is reduced for both cash and property dividends. (true or false)
True
A “stock split” increases the number of shares. Only the number of shares changes. The capital stock and retained earnings do not change. It is NOT considered a capital or asset distribution. (True or false)
True
When stock rights are “issued” without consideration, no entry (only disclosure) is made by either the “issuer” or the “recipient.” (true or false)
True
At the time the rights are “exercised” (and the corporation receives a cash inflow), additional PIC would be credited if the purchase price of the stock exceeded the par value (which is usually the case.) Retained earnings is not affected because this is a “capital” transaction, not an “operations” transaction
Exercise of right
DR: Cash
CR: Common Stock
CR: APIC
How to calculate the cost of stock rights
FMV of rights
—————————————————— X Cost of stock
FMV of rights + FMV of stockex-rights
