Module 15 Flashcards
What is stockholders’ equity?
The residual of assets minus liability
What is the JE to record the issuance of common stock?
Dr. Cash Cr. Common Stock (par value). Cr. Paid-in capital in excess of par
What is preferred stock?
Stock with preferential rights: Most Likely able to receive dividends of a set percentage of par value
What is participating mean in regards to stock?
Share with common stockholders in dividend distributions after both preferred and common stock holders have received a specified level of divident payment.
What is Cumulative mean in regards to stock?
Dividents are not paid in any year (dividents in arrears) must be made up before distribution can be made to common stockholders
What is convertible mean in regards to stock?
Preferred stockholders have an option to exchange their stock for common stock at a specified ratio.
What does callable mean in regards to stock?
The corporation has the option to repurchase the preferred stock at a specified price
What are stock subscriptions?
When a company can purchase stock prior to issuance.
What is the JE to at a stock subscription?
Dr. Cash. Dr. Subscription receivable. Cr. Common Stock Subscribed. Cr. Paid-in capital
What is the JE at cash receipt and at issuance.ck
Dr. Cash. Cr. Subscription receivable. Dr. Common stock subscribed. Cr. Common Sto
What is Treasury Stock?
When a company repurchases on the open market its own stock.
What are the 2 methods to account for treasury stock transactions?
Cost Method and Par Value Method
How is Treasury stock treated under the cost method?
It is recorded at cost and the difference between cost and resale is recognized at point of resale.
If you resale treasury stock under the cost method above the cost what do you credit?
You credit paid-in capital from treasury stock transactions
If you resale treasury stock under the cost method below cost, what do you do?
You reduce the balance in 1st) Paid in capital from treasury stock. 2nd) paid in capital from stock retirement. 3rd) than you would debit retained earnings
Can you credit Retained earnings?
No.
How is treasury stock treated under the par value method?
All capital balances associated with the treasury shares removed upon acquisiton
IF treasury stock cost is over par value what do you do under the par value method?
You charge paid-in capital from common stock for the amount in excess of par received
When do you debit retained earnings under the par value method?
The excess of the cost of reacquring the stock over the origianl issue cost.
What if the treasuy stock is reacquired at a cost less than original issue cost?
You 1) paid-in capital from capital from common stock is debited for the oroginal amount in exces of par. And 2) paid in capital from treasury stock is credited for the difference
When treasury stock is resold how is it treated?
It is treated as a typical issuance with the excess of selling price over par credited to “paid-in capital in excess of par”
What is retirement of stock?
Formal retirement or constructive retirement of stock with no intent to reissue
What is the JE to record the retirement of stock?
Dr. common stock. Dr. Paid-in capital in excess of par dr. Retained earnings cr. Treasury stock
How are gains treated in retirement of stock?
Credit paid-in capital from retirement
For a Divident what is the JE at date of declaration?
Dr. Retained earnings (dividends). Cr. Dividend payable
For a Dividend, what is the JE at date of record?
There is no entry made.
For a Divident, What is the JE at payment date?
Dr. Divident Payable. Cr. Cash
How do you account for Dividends of both preferred and common stock?
First take the % for the PS and multiply it by the par value of PS outstanding. Then take that same % and multiply it by the CS par value. Then take the par of the PS and Par of the CS and add them together use as denominator for distribution of the rest of the dividend.
What is a property dividend?
Dividends payable in an asset other than cash
How are property dividends treated?
Recorded at fair value with gain/loss recognized on the difference between assets BV and FV at disposition
What is a liquidating dividend?
Dividends based on other than earnings and are a return of capital to stockholders
How do you treat a liquidating dividend?
Paid-in capital is debited. Common stock cannot be debited because it is the legal capital which can only be eliminated upon corporate dissolution
What is a Script Dividend?
Issuance of promises to pay dividends in the future (may pay interest)
What I the JE for a script Dividend declared?le
Dr. Retained Earnings Cr. Scrip dividend payable
What is the JE for a script Dividend Paid?
Dr. Script dividend payable. Dr. Interest expense (maybe) Cr. Cash
IS a stock dividend a liability when declaired?
No as nothing is beind distributed except more stock certificateds
At declaration what is is the JE for a small stock dividend?
Dr. Retained earnings (at FMV) Cr. Common stock Distributable (Par). Cr. APIC in excess of par (plug)
At declaration what is the JE for a large Stock dividend?
Dr. Retained earnings (PAR) Cr. Common Stock Distributable (Par)
At Issuance what is the JE for a large or small stock dividend?
Dr. Stock dividend distributable. Cr. Common Stock
Do stock spits change the number of shares outstanding?
“Yes, They also change the par value per share”
Do stock spits change the amount of stockholders equity?.
No.
What is the JE for a stock split?
There is no entry made.
What is an appropriation of retained earnings?
An entry that is used to restrict the amount of retained earnings available for dividends?
What is the JE for an appropriation of retained earnings?
Dr. Retained earnings. Cr. Reserve for RE
What is the service period in stock options?
The dates from the grant date to exercise date
What is the JE to recognize the grant date of a stock option?
Dr. Deferred Comp. expense (FV of option on grant date X # of options) Cr. Stock Options outstanding
What type of account is stock options Outstanding?
It is a stockholders equity account in the APIC area
What type of account is Deferred Comp. Expense?
It is a contra account to stock options outstanding
During each year in the service what is the JE that needs recorded?
Dr. Compenstion expense. (Stock options outstanding / service period) Cr. Deferred compensation expense
What is the JE when the stock option is exercised?
Dr. Cash (# of shares times price). Dr. Stock options outstanding (above). Cr. Common Stock (at par) Cr. APIC
What is a stock appreciation right?
IT allows employees to receive stock or cahs equal in amount to the difference between the market value, and some predetermined amount per share for a certain # of shares
What is corporate Bankruptcy?
Bankruptcy is the final legal act for a company
What is the financial statement that is prepared during bankruptcy?
Statement of affairs
How does the statement of affairs classify assets?
1) assets pledged by secured creditors. 2) Assets pledged wih partially secured creditors. 3) Free assets
What is a Quasi Reorganization?
IT is a reorginization that allows companies to avoid formal bankruptcy proceedings through an informal proceeding. It is applicable when retained earnings were negative
What is the prodedure to go through a quasi reorganization?
1) revalue assets to current values. 2) eliminate any deficient by charging paid-in capital (first capital then take away common stock par value)
What do you have to do for 10 years after a quasi reorganization?
You have to date and disclose retained earnings something similar to “since Quasi reorganization of June 30 2010”
What is a stock right?
They have to give existing shareholders the opportunity to purchase stocks to keep their same % of stock owned.
What is the ratio for Dividend Payout?
Dividends per share / earnings per share (Basic)
What is the ratio for - Book value of common stock?
At a point in time - Common stock stockholders equity / common shares outstanding
What is the ratio for - rate of return on comon stockholders equity?
Net income available to common stockholders / Common stockholders equity
What is the debt to equity ratio?
Total Debt / stockholders equity
Does IFRS issue a comprehensive set of requirements for reporting shareholders equity?
No, because laws of a particular jurisdiction or country may influence rules. IFRS provides some rules as to the minimum required disclosures”
What is Basic Earnings per Share?
Net income available to stockholders (NI - dividends declared on noncumulative preferred stock - dividends accumulated for the current period only on cumulative preferred stock) / Weighted Average # of shares outstanding
What are diluted earnings per share?
(Net Income - Preferred Dividends) / (Weighted Average # of shares outstanding + # of shares not acquired with proceeds from options.
