Owner's Equity

Question 1

Question where you need to calculate net income and you’re given assets, liabilities, and owner’s equity along with dividends paid

Answer 1

Beginning retained earnings is total owner’s equity and ending retained earnings is assets minus liabilities. You use the retained earnings formula and plug everything in to find net income.

Question 2

Stock issuance journal entry

Answer 2

Dr. Cash
Cr. Common Stock
Cr. APIC

Question 3

How to account for stock issuance costs

Answer 3

They reduce both the Cash & APIC account

Not expensed

Question 4

How to account for annual costs of maintaining stockholder records

Answer 4

That is expensed as incurred

Question 5

Journal Entries for preferred stock called or redeemed

Answer 5

Dr. Dividends - Face times Dividend rate
Cr. Cash - Record dividend in arrears

Dr. Preferred stock
Dr. APIC - Preferred
Dr. Retained earnings - plug
Cr. APIC.Retirement of preferred stocks - plug
Cr. Cash - cash paid for call or redemption

Question 6

Journal Entries for preferred stock converted

Answer 6

Dr. Dividends - Face times dividend rate
Cr. Cash - record dividend in arrears

Dr. Preferred stock
Dr. APIC - Preferred
Dr. Retained earnings - plug
Cr. Common stock
Cr. APIC.Common - plug

Question 7

Treasury stock key points

Answer 7

• When treasury stock is purchased the owner’s equity decreases by the amount of cash paid
• When treasury stock is sold the owner’s equity increases by the amount of cash paid

Question 8

Treasury stock Cost method

Answer 8

Journal entry to purchase is always the same
Dr. Treasury stock
Cr. Cash

Selling treasury stock
Dr. Cash - amount paid
Dr. APIC or R/E if selling price is less
Cr. Treasury stock
Cr. APIC if selling price is higher

Assume FIFO when selling treasury stock less than previously purchased, use the first purchase price to calculate apic and if there wasn’t any then you debit retained earnings when you sell

Question 9

Treasury stock par method

Answer 9

• Treasury stock is always at PAR value for purchase and selling
• When you purchase you always debit treasury stock at PAR and credit APIC-Common for the difference between par & original issue price
• When you purchase treasury stock for more than the original issue you end up debiting retained earnings or if you had a previous issue for less than the original issue price then you debit the treasury stock from that journal entry first.

Question 10

Income is not effected by treasury stock transactions

Answer 10

So no gain or loss is ever recorded

Question 11

Journal entry to retire treasury stock - cost method

Answer 11

Dr. Common stock - PAR value
Dr. APIC - original issue minus par
Dr. Retained earnings if necessary
Cr. Treasury stock

Question 12

Canceling treasury stock

Answer 12

Multiply the number of canceled shares and multiply by par value, then subtract that from common stock

Question 13

How to report Dividends in arrears

Answer 13

They are footnoted only and aren’t a liability until declared

Question 14

Cash dividends Journal entries

Answer 14

At declaration
Dr. Dividends Declared or Retained Earnings
Cr. Dividends Payable

At Payment
Dr. Dividends payable
Cr. Cash

Question 15

Property dividends journal entires

Answer 15

At declaration
Dr. Investment in Stock
Cr. Gain - difference between what you paid and what their worth at declaration

Dr. Dividend declared
Cr. Property dividends payable

At payment
Dr. Property dividends payable
Cr. Investment in stock

Question 16

Script dividend journal entries

Answer 16

At declaration
Dr. Dividends declared or Retained earnings
Cr. Scrip dividends payable

At payment
Dr. Script dividends payable
Dr. Interest expense
Cr. Cash

Question 17

Liquidating dividends journal entry

Answer 17

At declaration
Dr. Dividends declared - net income value
Dr. APIC - Plug
Cr. Dividends payable

Question 18

Small stock dividend journal entry

Answer 18

At declaration
Dr. Retained earnings - market value
Cr. Common stock - par
Cr. APIC

Less than 25%

Question 19

Large stock dividend journal entry

Answer 19

At declaration
Dr. Retained earnings - par
Cr. Common stock

Greater than 20%

Question 20

How treasury stock affects common stock issued

Answer 20

Does not affect issued stock since its already incorporated into it, only outstanding stock and in problems asking about, any other issuances are added at par value

Question 21

Dividend allocation fully participating

Answer 21

• Multiply out the par value and find the proportions compared to the total
• If there are enough dividends remaining they are portioned out according to par value percentages from the proportions

Question 22

Dividend allocation partially participating

Answer 22

• Multiply out the par value and find the proportions compared to the total
• If there is enough multiply the partial % by preferred par value and the rest goes to common
• If there isn’t enough the remainder is based on the par allocation and to find this out you multiply the total par value by the partial %

Question 23

Book value per share

Answer 23

when noncumlative preferred has value higher than par you divide the total amount by par and multiple that by the value higher than par and that’s what you subtract from the book value per share formula but first you have to add everything as is

Question 24

How to calculate quazi reorganization

Answer 24

Multiply number of shares of common stock by the difference between original par and value it has to be reduced to. Send find the difference between that and the deficit. Then add the remainder to APIC