New f7 - equity, EPS, and cash flow Flashcards
T-Stock - Treasury stock
- treasury stock is a corporation’s own stock that has been issued to shareholders and subsequently reacquired (but not retired).
- t stock are not entitled to any of the rights of ownership given to common shareholders (voting or dividends)
- four major topics in t stock: cost method (j/e), par value method (j/e), retirement of t stock, donated stock
T-Stock -
Treasury stock - cost method
Treasury stock
+ | -
APIC - t/s
- | +
cost method (APIC-T/S takes the impact)
a. when issue the common stock
Cash xxxx
Common stock xxxx
APIC - C.S xxxx
b. buy back as t-stock
treasury stock xxxx (original cost)
Cash xxxx
c. reissue the t-stock back to market (above cost)
cash xxxx
T-stock xxxx (original cost)
APIC - t/s xxxx
d. reissue the t-stock back to market( below cost)
cash xxxx
APIC - t/s xxxx (taking impact first)
retained e xxxx (plug, if apic-t/s cannot fully cover)
Treasury stock xxxx (original cost)
net income or retained earnings will never be increased through t-stock transaction.
there is no gain or loss on the purchase and/or reissue the t-stock. Any “difference” goes to APIC (either APIC- t/s for cost method, or APIC - c/s for par value method).
If there is a loss, apic - t/s takes the shot, and then retained earning.
T-stock - par value method
par value method
a. original issue (1,000 shares)
cash 10,000 ($10)
common stock 8,000 ($8)
APIC- c/s 2,000 ($2)
b. buy back above issue price (above issue price)
treasury stock($8) 8,000
APIC - c/s (move out) 2,000 ($2)
Retained earnings 2,000 (plug, decrease)
cash 12,000 ($12)
c. buy back below issue price
t - stock ($8) 8,000
APIC - c/s ($2) 2,000
cash 6,000 ($6)
APIC - t/s 4,000 (plug, gain)
d. reissue share (repurchase for 12 and reissue in 20)
cash 20,000
treasury stock($8) 8,000
APIC - c/s (new) 12,000
e. reissue share (repurchase for 12 and reissue for 9)
cash 9,000
t - stock ($8) 8,000
apic - c/s(new) 1,000
诀窍：t-stock和APIC都紧跟par value!!
there is no gain or loss on the purchase and/or reissue the t-stock. Any “difference” goes to APIC (either APIC- t/s for cost method, or APIC - c/s for par value method).
If there is a loss (sold below par value), apic - t/s (FULL) takes the shot, and then retained earning.
cash xxxx
APIC- t/s xxxx
R/E xxxx
T-stock xxxx
Dividends - declared dividends + interests = scrip dividends
4/1/Year 1 - 12/31/Year 1
Retained earnings 100,000
Interests exp 75,000
notes payable** 175,000
1/1year 2 - 3/31/year 2
Interest exp 25,000
notes payable 25,000
Matching principal
Dividends - Liquidating dividends
liquidating dividends occur when dividends exceed retained earnings.
Retained earnings xxxx (first)
APIC - c.s xxxx (second)
common stock xxxx (third)
cash/dividend payable xxxx
Stock Issurance - stock right
the exercise of stock rights requires the following -
Cash [amount received]
c.stock [par]
apic - c.s. [plug]
no market price related!!!! No income related!!!! the portion of proceeds is credited to “APIC-c/s” ALL the time when the right is exercised.
Dividends topics - dates
Dates -
a. date of declaration (is the date the board of directors formally approves a dividend.) - liability created and R/E reduced.
b. date of record ( is the date that shareholders to receive the dividend)
c. date of payment (making the payment)
Retained earnings - Quasi-reorganiation
revises the capital structure
1. purpose - to restate overvalued assets to their lower fair values and to eliminate a retained earnings deficit.
- procedures
bring R/E (deficit) to zero by decreasing the par value
BEFORE
common stock ($30 par) 300,000
apic 150,000
r/e (210,000)
total equity 240,000
Given: Par $30 -> $5
J/E
Common stock ($30 - $5)*10,000 250,000
R/E(bring to zero) 210,000
APIC (Plug) 40,000
AFTER
common stock ($5 par) 50,000
apic 190,000 (150 + 40)
R/E -0-
Total eqity 240,000
主意 total equity 没变的 只是结构改变！
Dividends topic - different kinds of dividends
- cash dividends (paid from retained earnings)
- Property (In-kind) dividends - on the date of declaration, the property - restated to fair value of the date of declaration and any gain/loss goes to income statement.
- scrip dividends - pay later
retained earnings xxx
interest expenses xxx
notes payable xxx (not dividends pay.)
4. liquidating dividends
where RE APIC -> Common stock
RE xxx
APIC xxx
CS xxx
Dividends payable xxx
- stock dividends (new card)
Overall - Stockholders’ equity (CARAT)
Common stock (pref.stock) APIC Retained earnings AOCI (PUFE R) Treasury Stock
Retained earnings - core formula of retained earnings
r/e = net income that has not been paid out as dividends.
NI - Dividends = R/E
net income / loss - dividends \+/- prior period adjustments \+/- accounting changes reported retrospectively \+ adjustment from quasi-reorganization = RE
T-stock - retirement and donation
Retirement of t stock
- cost method
common stock(Par) xxxx
apic - cs (orginial par) xxxx
R/E (PLUG) xxxx
t-stock (repurchase cost) xxxx
- par value method
common stock (par) xxx
t-stock (par) xxx
特点：c-stock and t-stock双消除
Donated t stock
Donated stock is a company’s own stock received as a donation from a stockholder. There is NO CHANGE in total shareholders’ equity!! but the number of share outstanding decreases.
Donated T-stock (@FMV) xxxx
APIC xxxx
When sell donated stock -
Cash (@sales price) xxx
APIC (Plug) xxx
Donated t-stuck (originial FMV) xxx
APIC (Plug) xxx
记住
t-stock
+ | -
Dividends topic - Stock Dividends and Stock Splits
- small stock dividends (
Stock Splits
EPS - Simple Capital Structure - Basic EPS
Major Topics under “Basic EPS”
1. Basic EPS Formula
Basic EPS = income available to common stockholders/WASCO = (Net Income - Pref. Stock Dividends) / WACSO
- Pref. Stock Dividends
Non-cumulative: if Declared -> deducted from NI
Cumulative: Always -> deducted from NI
if there is a loss from continuing operations, the amount of loss will be increased by pref. stock dividends.
- Weighted Average Number of common shares outstanding (WACSO)
Stock dividends and stock splits - affect retrospectively to ALL periods presented.
该stock shares数量的持续时间
- if a stock dividends or stock split occurs after the end of the period but before the financial statements are issued, must revise the prior f/s. AFFECT RETROSPECTIVELY.
EPS - Complex Capital Structure - diluted EPS - overall
report both diluted and basic EPS, pick the lower one
major topics
- options and warrants
- convertible bonds
- convertible perf. stock
- contingent issues
EPS - Complex Capital Structure - diluted EPS - stock options and warrants
(report both diluted and basic EPS, pick the lower one)
Stock options and warrants
分子不变，分母变
1. exercise price (option price) of the stock < Fair market value of the stock
exercise price (option price) of the stock > fair market value of the stock
- Treasury method (那些不能被buy back 回来的）
number of shares, exercise - (number of shares, exercise * exercise price / average fair market value per stock) = additional shares still in market
number of shares - (cash received from exercise option / average fair market value per share) = additional shares
- Dilutive EPS
= (NI - Pref. stock dividends) / (common stock shares + additional shares)
EPS - Complex Capital Structure - diluted EPS - convertible securities (bonds)
(report both diluted and basic EPS, pick the lower one)
分子、分母都增加
“if-converted method”
Dilutive EPS = [分子 + Interest Expense * (1 - Tax%)] / [分母 + additional converted shares]
if bond is issued above or below the par value,
Interest expense = stated int. expense + discount
interest expense = stated int. expense - premium
–> interest expense * (1 - tax%)
pretend they were converted.
EPS - Complex Capital Structure - diluted EPS - convertible securities (convertible preferred stock)
(report both diluted and basic EPS, pick the lower one)
分子 - pref. dividends + pref. dividends
分母 + additional converted shares
pretend they were converted.
EPS - Complex Capital Structure - diluted EPS - Contingent shares
Also included in the calculation of basic EPS
- condition met -> those shares are included in basic EPS as of the beginning of the period.
2, condition not met -> shares issueable in dilutive EPS, as of the beginning of the period
future earning taget -> Dilutive EPS
EPS - Disclosure
Convertible EPS are recognized when computing duluted EPS ONLY IF the conversion is dilutive.
which means Dilutive EPS < basic EPS
All public entities must present EPS on the face of the IS.
Must disclose basic EPS and duluted EPS for (1) income from continuing operations, (2) discontinued operations, and (3) extraordinary items
cash flow per share is not reported.
Additional
(1) a reconciliation of the numerators and the denumerators of the basic and diluted per share computations for income from continuing operations
(2) the effect that has been given to preferred dividends
(3) securities that could dilute basic EPS
(4) description of any transaction occurred after the period end
Capital Stock - Common Stock
- Par Value
- Authorized, issued, and outstanding
- Common stock
- Book Value per common stock = Common stockholders’ equity / Common shares outstanding
Total shareholders’ equity - Pref. Stock outstanding at greater of call price or par value - cumulative preferred dividends in arrears = common stock equity
Capital Stock - Preferred Stock
what is preferred stock ? stock with preferences and features that are not associated with common stock. but no voting right.
when issuing -
cash xxxx
pref. stock xxxx
APIC xxxx
- cumulative preferred stock - cumulative dividends (= dividends in arrears)
- non-cumulative preferred stock
- participating pref. stock (details in new card)
- non-participating pref. stock
- Preference upon liquidating - preferred stock may include a preference to assets upon liquidation of the entity.
- convertible preferred stock - may convert to common stk
- callable referred stock - may be callable/repurchased at a specified price
Capital Stock - Preferred Stock - Participating Preferred stock
主意1. common stock share the same portion
2. par value -> proration of remaining dividends
cash dividends 100,000
pref. stk div (8%) (2,000)
98,000
com. stk (8%*com.stk par) (5,000) 这里很关键
remaining dividends 93,000
Pref. stk (par=$1, 10,000 shares) = $10,000
Com. stk (Par=$3, 100,000 shares) = $300,000
total = $310,000
pref. stock portion = (10,000 / 310,000) x $93,000
Com. stock portion = (300,000 / 310,000) x $93,000
total pref. stk div = 2,000 + pref. stock portion
total com. stk div = 5,000 + Com. stock portion
