SHE Part 2

Question 1

Retained Earnings

Answer 1

• cumulative profits, net of losses, distribution to owners, and other adjustments, which are not yet distributed
• accumulated profit/loss

Question 2

Retained earnings consists of:

Answer 2

Unappropriated (unrestricted) - available for distribution

Appropriated (restricted) - not available unless restriction is removed

Question 3

Appropriations may be a result of

Answer 3

1. Legal requirement
2. Contractual agreement
3. Voluntary

Question 4

Does appropriation affect the total SHE?

Answer 4

No.

Question 5

What is the effect of dividends declaration to RE?

Answer 5

Dividends declarations reduces RE.

Question 6

What are the shares entitled to dividends?

Answer 6

All outstanding shares and subscribed par value shares

Question 7

What are the shares not entitled to dividends?

Answer 7

Unissued shares, subscribed no-par value shares, and treasury shares

Question 8

When does the corporation recognizes liability?

Answer 8

On date of declaration when it is appropriately authorized and is no longer at the discretion of the company.

Question 9

What is the difference between stock dividends from cash and property dividends?

Answer 9

Share dividends do not transfer asset to the shareholders.

Question 10

How does share dividends affect total SHE?

Answer 10

Affects only the accounts within the shareholder’s equity; it increases the total share capital but reduces the RE, but the total SHE remains unchanged since both accounts are component of it.

Question 11

What is small share dividends and how is the accounting for it?

Answer 11

less than 20% of the previously outstanding shares; @ FV

Question 12

What is large share dividends and how is the accounting for it?

Answer 12

20% or more of the previously outstanding shares; @ par value

Question 13

Share splits

Answer 13

memo entry only; form of recapitalization/reorganization

Question 14

Share splits/ Splits-up

Answer 14

increases the no. of shares and reduces the par value

Question 15

Reverse share split / split-down

Answer 15

decreases no of shares and increases par value

Question 16

What is the effect of share splits in the total SHE?

Answer 16

no effect

Question 17

Non-cumulative preference shares

Answer 17

entitles the shareholders only to the payment of current dividends

Question 18

Cumulative shareholders

Answer 18

entitles the holder to the payment not only of current dividends but also of back dividends in arrears

Question 19

Reasons for declaring share dividends

Answer 19

1. To retain profits in the corporation.
2. To make an impression to the public because many considers share dividends as return on capital.
3. To decrease fair value per share.

Question 20

Redeemable preference shares are classified as

Answer 20

financial liability and dividends declared on them are recognized as interest expense

Question 21

Liquidating dividends

Answer 21

Dividends declared out of capital rather than retained earnings. Declared upon corporate liquidation.

Question 22

Dividends declared are disclosed either in the

Answer 22

statement of changes in the equity or in the notes

Question 23

Recapitalization

Answer 23

Refers to the changes in the capital structure of an entity brought about by the cancellation of old shares and issuance of new shares as replacement

Question 24

Recapitalization is accomplished through

Answer 24

1. Change from par to no-par value or vice versa
2. Reduction of par value or stated value
3. Share splits or reverse splits

Question 25

Quasi-reorganization

Answer 25

Accounting procedure whereby a financially troubled corporation but with favorable prospects is permitted to revalue its assets and liabilities, and realign its equity

Question 26

Quasi-reorganization may be effected through

Answer 26

1. Revaluation of PPE

2. Recapitalization

Question 27

Book value per share

Answer 27

Measure the amounts each share would receive assuming the entity is liquidated

Question 28

Is subscription receivable deducted?

Answer 28

Subscriptions receivable is not deducted.

Question 29

Earnings per share

Answer 29

Measure how much profit or loss each share has earned

Question 30

Uses of earnings per share

Answer 30

1. Assess the value of entity’s shares
2. Promotes comparability
3. Provides basis for dividends policy

Question 31

The higher the EPS

Answer 31

• the more likely the share value increases

- the higher the dividends will be declared

Question 32

Are both public and private entities required to present earnings per share?

Answer 32

Public entities are required, non-public entities are not but are encouraged.

Question 33

Presentation of EPS for income or loss from continuing operations

Answer 33

presented on the face of income statement

Question 34

Presentation of EPS for discontinued operations

Answer 34

either on the:

a. face of income statement
b. in the notes to the statements

Question 35

If an entity chose to disclose EPS on the separate income statement

Answer 35

it shall not present the EPS information in the consolidated FS

Question 36

Cumulative if EPS

Answer 36

one year dividend, whether declared or not

Question 37

Non-cumulative if EPS

Answer 37

only the dividend declared

Question 38

Treatment for treasury shares in computing weighted ave. of outstanding shares

Answer 38

If reacquired - deduct

If resold/reissued - add

Question 39

Cumulative if BVPS

Answer 39

all dividends in arrears

Question 40

Noncumulative if BVPS

Answer 40

current year dividend if in arrears