Shareholder Equity Flashcards
Info
Started on 20 August 2014 @ 5.00 PM
Total questions 112
To do at a time 18,
Practice session 84,
A company wishes to raise funds by issuing either bonds or cumulative preferred stock. How will the annual interest or dividend affect annual net earnings available to common stockholders each year?
Annual net earnings available to common stockholders are reduced by annual interest and preferred dividends.
Stock dividend is paid from
Retained earnings
Which of the following models for assigning values to options takes into account the volatility of stock prices?
The Black-Scholes, binomial models, and lattice models are option-pricing models that take into account the volatility of stock prices when measuring the fair value of options. The calculated value method is only available to nonpublic companies that cannot estimate volatility.
BV per share
Common stockholders’ equity/Outstanding shares
Total contributed capital is
total legal capital plus other paid-in amounts.
In property dividend how gain is recognized?
In a property dividend, a gain is recognized for the excess of FV over carrying value on date of declaration.
Under IFRS, the method used when preferred shares are converted into ordinary shares is
Book value method.
The book value method is the method used to convert preferred shares into ordinary shares.
Which method is unacceptable under IFRS, although it may be used for US GAAP to convert preferred share to ordinary share.
Market value method.
Under IFRS, which method is unacceptable to preferred shares into ordinary shares.
Fair value method.
The fair value method is an unacceptable method for preferred stock conversion.
Dilutive stock options would be used in the calculation of
Basic earnings
per share Diluted earnings
per share
No No
No Yes
Yes Yes
Yes No
Basic earnings per share is computed based on common stock outstanding, fully diluted earnings per share is based on common stock and all dilutive securities. Dilutive stock options are used in the calculation of diluted earnings per share.
Under IFRS, all of the following are acceptable method of accounting for treasury stock except:
Fair value method.
The fair value method is not an acceptable method of accounting for treasury stock. The three acceptable methods are the par value method, the cost method, and the constructive retirement method.
does stock option increases stockholder equity
yes
The excess of the fair value of the consideration received over the stated value of no par common stock should be credited to
Additional paid-in capital.
In what circumstances is compensation expense immediately recognized for an employee share-based payment?
In circumstances when options are granted for prior service, and the options are immediately exercisable.
Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock?
Stock warrants.
Stock warrants are issued to existing shareholders so that they can purchase additional shares of stock in order to maintain their ownership percentage.
stock options are usually granted to whom.
stock options are usually granted to officers and key employees as a form of compensation.
Purchase and sale of treasury stock, journal entry
This answer is incorrect. When treasury stock is acquired using the cost method, a stockholders’ equity account is debited for the cost of the treasury stock.
Treasury stock xxx
Cash xxx
When the treasury stock is subsequently sold for cash at more than its acquisition price, additional paid-in capital is credited for the gain.
Cash xxx
Treasury stock xxx
APIC treasury stock xxx
Thus, the purchase would not affect additional paid-in capital but, the sale would increase it.
How would the declaration of a 10% stock dividend by a corporation affect each of the following on its books?
Retained earnings (RE) Total stockholders’ equity (SE)
Decrease No effect
This answer is correct. Regardless of the size of a stock dividend, RE is decreased and other SE accounts are increased. Since the dividend described in this question is small (< 20-25% of the outstanding shares), the journal entry would be
Retained earnings (FV)
Common stock dividend distributable (par value)
Additional paid-in capital (plug)
Accordingly, RE will decrease and, since all affected accounts are elements of SE, total SE will not change. Note that the entry for a large stock dividend would be
Retained earnings (par)
Common stock dividend distributable (par)
The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton’s income statement for the current fiscal year. While reviewing the income statement, Carlton’s finance director noticed that the earnings per share data has been omitted. What changes will have to be made to Carlton’s income statement as a result of the omission of the earnings per share data?
Carlton’s income statement will have to be revised to include the earnings per share data.
In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be
Deducted from net income whether declared or not.
Normally, dividends are not paid on shares which have not been issued. However, an entity can choose to pay dividend equivalents on options. How are these dividend equivalents accounted for on options which vest, and how are they accounted for on options which do not vest?
Vest Not vest
Compensation expense Compensation expense
Compensation expense Charge against retained earnings
Charge against retained earnings Compensation expense
Dividends or dividend equivalents on options which vest are to be accounted for as other dividends—that is, charged against retained earnings—but those paid on options which do not vest are deemed to be compensation expense.
When bonds are issued, any interest that has not been paid will be
will be accrued and accounted for as a current liability.
When treasury stock is purchased for cash at more than its par value, what is the effect on total stockholders’ equity under cost method and under par method?
Both will decrease
