Roger Chapters 15-20

Question 1

What are the two methods that can be used to measure options expected to vest and become exercisable?

Answer 1

1. Find # options expected to be forefeited before coming exercisable
2. Account for forfeitures as they occur

Question 2

How do you account for a change in accounting principle?

Answer 2

On a restrospective basis. Correct prior periods and adjust in beginning RE of earliest period presented.

Question 3

What are the three characteristics of a segment?

Answer 3

1. It is involved in business activities that may result in revenues and expenses (internal or external)
2. Performance is evaluated for resource allocation
3. There is financial info that is identifiable to the component

Question 4

What is the equation for basic EPS?

Answer 4

(Total net income - preferred dividends) / Weighted average common stock outstanding

Question 6

What does it mean if a share is convertible?

Answer 6

The preferred share can be converted to common shares at a specific rate

Question 7

What is the criteria for non-accelerated filer? How many days does it have to file its 10-K and its 10-Q?

Answer 7

Market value under <75 mil OR 75-700 mil with under 100 mil annual revenues.

90 days after end of the financial year for 10-K. 45 days after the end of the financial quarter for 10-Q.

Question 8

How do you account for a change in accounting estimate?

Answer 8

On a prospective basis.

Question 9

What is the equation for diluted EPS?

Answer 9

(Net income - preferred dividends + bond interest (net of tax)) / (weighted average common stock outstanding + # shares common stock converted)

Question 10

What is a liquidating dividend?

Answer 10

Dividend that is paid out of capital NOT earnings (reduces APIC)

Question 11

What is the intrinsic method?

Answer 11

If FV share > exercise compensation, compensation is the difference x # of options

If FV share < exercise compensation, there is no compensation

Question 12

What does it mean if a share is cumulative?

Answer 12

If dividends were missed in earlier years then they must be paid to cumulative shareholders before common shareholders

Question 13

What does it mean if a share is callable?

Answer 13

The corporation that issued it has the option to repurchase at a specified price

Question 14

How do you account for compensatory share based transactions?

Answer 14

Recognize compensation expense over time and measure at FMV of equity used

Question 15

What is the journal entry for a partial liquidating dividend?

Answer 15

*RE

*APIC

*Cash

Question 16

What does it mean if something is dilutive?

Answer 16

It means that it reduces EPS.

Question 17

Within how many days do you have to file an 8-K?

Answer 17

Within 4 days of the event

Question 18

How do you account for non-compensatory share based transactions?

Answer 18

Don’t recognized compensation expense over time. Only recognized when exercised.

*Cash

*C/S

*APIC

Question 19

What is the journal entry for a property dividend?

Answer 19

*RE

*Asset

*Gain

Question 20

What is the criteria for a large accelerated filer? How many days does it have to file its 10-K and its 10-Q?

Answer 20

Market value of 700 mil and up. 60 days after the end of the financial year for 10-K.

40 days after the end of the financial quarter for 10-Q.

Question 21

What does it mean if a share is participating?

Answer 21

If common stocks get a higher rate on par than the stated rate on preferred dividends, participating dividends get that same higher rate

Question 22

What are the two conditions that must be satisfied for a share based transaction to be non-compensatory?

Answer 22

1. Terms are comparable (no more favorable) to terms offered to shareholders with same stock
2. Any purchase discount below FMV isn’t > 5%

Question 23

What are the three types of reportable segments and what tests do they need?

Answer 23

1. Operations in different industries. Test all three tests (revenue, profit and loss, assets) and disclose all three
2. Foreign operations. Test revenue and assets only but disclose all three tests.
3. Major customer or export sales. Test revenue and disclose revenue only.

Question 24

What is the criteria for an accelerated filer? How many days does it have to file its 10-K and its 10-Q?

Answer 24

Market value of 75-700 mil and annual revenues of 100 mil and up.

75 days after end of the financial year for 10-K. 40 days after the end of the financial quarter for 10-Q.

Question 25

What are the steps to calculating dividends for fully participating cumulative stock?

Answer 25

1. Pay dividends in arrears
2. Pay preferred divs for the current year
3. Pay common stock equivalent dividend % (common shares x common par x PREFERRED %)
4. Allocate any excess dividends between preferred and common stock

Question 26

How do you account for a correction of an error?

Answer 26

On a retroactive basis. Correct prior periods and adjust in beginning RE of earliest period presented.

Question 27

What is a scrip dividend?

Answer 27

Dividend that gives the dividend but no money

Question 28

What is the journal entry for a scrip dividend?

Answer 28

*RE

*Note payable

Question 29

What is the journal entry for a stock dividend?

Answer 29

If small (< 20-25%), record at FMV

*RE

*CS

*APIC

If large (> 20-25%), record at par

*RE

*CS

Question 30

What is a change in reporting entity? How is it accounted for?

Answer 30

Change in reporting entity is when the entities are changing in a consolidated financial statement. It is NOT due to changes in ownership. It is accounted for on a retrospective basis

Question 31

What are the types of accounting changes?

Answer 31

1. Change in accounting principle
2. Change in accounting estimate
3. Change in reporting entity Correction of an error is NOT an accounting change