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FAR > Shareholders Equity > Flashcards

Shareholders Equity Flashcards

1
Q

When common stock and preferred stock are issued in a lump sump purchase- how is APIC allocated?

A

APIC for each is allocated by its respective % of the total FMV of the shares x the proceeds.

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2
Q

When is APIC recorded on a stock subscription?

A

APIC increases on date subscription is recorded - not on the date paid for or issued

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3
Q

To what extent is retained earnings restricted if legally restricted due to Treasury Stock?

A

It will be restricted to the extent of the balance in the Treasury Stock account.

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4
Q

When are dividends in arrear recorded for cumulative preferred stock?

A

They are not accrued until declared.

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5
Q

When are dividends in arrears included as a disclosure and not an accrual in the financial statements?

A

If a year passes and no Cumulative Preferred Stock is declared- then the dividends in arrears are included as a disclosure - not an accrual in the Financial Statements.

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6
Q

What is the gain or loss when a non-monetary asset is distributed to a shareholder?

A

The gain or loss is the difference between the FMV of the asset distributed at the date of distribution and its carry amount on the company’s books

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7
Q

What is the effect on retained earnings when a non-monetary asset is distributed to a shareholder?

A

The effect on Retained Earnings is the Carrying Amount of the asset

RE will be debited when the dividend is declared for the FMV of the asset- which is more (or less) than the carrying amount

Gain/Loss recorded when the asset is distributed will offset the original effect of the debt to RE and will be a wash

The net effect of the entry is that RE will decrease by the CV of the asset

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8
Q

When is Retained Earnings debited for FMV of Stock for a stock dividend?

A

When Stock Dividend is less than 25% of Common Stock outstanding

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9
Q

When is Retained Earnings debited for Par Value for a stock dividend?

A

When Stock Dividend is greater than 25% of common stock outstanding

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10
Q

What is the effect of a stock dividend or a stock split on total shareholder equity?

A

Stock dividends and stock splits both have no effect on Total Shareholder Equity

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11
Q

What is the affect on APIC from a stock split?

A

Stock splits only affect par value - APIC remains the same.

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12
Q

When is compensation expense recorded at the time of grant for a stock option?

A

Compensation expense is recorded at the time of grant if options are exercisable immediately

They are based on past service.

Expense recognized : FV Stock Option x # of Shares

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13
Q

What interest rate is used to discount stock options?

A

The risk-free interest rate

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14
Q

What date is used as the measurement date for share-based payments classified as liabilities?

A

The settlement date.

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15
Q

How are compensation costs for share-based payments classified as liabilities measured?

A

Compensation costs for share-based payments classified as liabilities are measured by the change in the fair value of the instrument for each reporting period

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16
Q

What is the net increase to shareholder equity in a reorganization where a company pays cash and issues stock to satisfy unsecured creditors?

A

Net increase to SHE : Gain on settlement of debt + Credit to SHE from stock issuance

17
Q

What is the primary purpose of a quasi-reorganization?

A

To eliminate a deficit balance in RE by restating its assets to Fair Value

It does not directly protect a company from its creditors

18
Q

How is return on Common Stockholder’s Equity calculated?

A

(Net Income - P/S Dividends) / Average Common Stockholders Equity

Note: Average CSE : Common Stock + RE

19
Q

How is book value per share of common stock calculated?

A

Total Common Stock
- Total Preferred Stock
- P/S Dividends in Arrears
- P/S Liquidation Premium
:Total Book Value

Book Value per Share : Total Book Value / Shares outstanding

20
Q

How is the dividend per share payout ratio calculated?

A

Dividends per share / earnings per share

21
Q

How is basic Earnings Per Share (EPS) calculated?

A

(Net Income - Preferred Dividends) / Average C/S Outstanding

Note - If cumulative- subtract the P/S dividend regardless of whether or not they’re declared.

22
Q

For EPS purposes- which date is used for calculation purposes when a stock split or stock dividend has occurred?

A

For EPS purposes- treat C/S stock splits or stock dividends as if they occurred at the beginning of the year- regardless of when actually issued during the year

23
Q

For which areas is EPS required to be shown?

A

EPS is only required to be shown for Income from Continuing Operations and Net Income.

All others (discontinued operations- extraordinary items) can be shown on the Financial Statements or in the notes

24
Q

When do stock options increase share outstanding?

A

Only if they are dilutive.

Their exercise price is LESS than the market value

If not- you ignore them in the calculation

25
Q

How is EPS calculated when convertible bonds are taken into consideration?

A

[Net Income + Bond Interest (Net of Tax)] / (Average Common Stock Shares + Convertible Equivalents)

Bond interest is added back because if converted- there would be no bond interest expense

Contingent Issue Agreements are included in Diluted EPS if contingency is met

26
Q

JE for repurchasing treasury stock under Par Value method

A

Dr. T/S (shares * par)
Dr. APIC
Cr. PIC-T/S (plug)
Cr. cash

27
Q

JE for resale of treasury stock under Par Value method

A

Dr. cash
Cr. PIC
Cr. T/S

28
Q

JE for retiring stock under Par Value method

A

Dr. C/S

Cr. T/S

29
Q

calculate dividends available for participating P/S

A

participating P/S * % = participating dividends
C/S * % = participating share for C/S
dividends declared - total participating dividends
excess allocated to P/S and C/S based on ratio of outstanding shares

30
Q

effects of reverse stock split

A

does not affect any SE accounts

par value increases, number of shares outstanding decreases

31
Q

compensation expense of stock options to employees

A

expense = [FMV of option * number of shares] ÷ requisite service period

32
Q

JE recording stock options issued

A

Dr. Deferred Compensation

Cr. PIC-stock options [FMV of options * number of shares]

33
Q

when to recognize full compensation expense of stock options

A

granted for prior service

exercisable immediately

34
Q

JE recognizing compensation expense

A

Dr. Compensation expense

Cr. Deferred Compensation

35
Q

JE for exercising stock options

A

Dr. Cash (share price * number of shares)
Dr. PIC-stock options (original balance)
Cr. C/S (par)
Cr. (plug)

36
Q

gain on settlement of debt for reorganizations =

A

debt owed - cash paid - any issuance of stock

37
Q

cost of stock rights received =

A

cost of investment allocated based on relative FMV

38
Q

gain on sale of stock rights =

A

net proceeds from rights - [cost * (FMV of rights÷total FMV)]

FAR (25 decks)

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