Stock Issuance Flashcards

1
Q

Types of questions on the CPA Exam:

A

Record the issuance of stock

  • Issued for cash (par or no par)
  • Stock issue costs
  • Issued for nonmonetary consideration
  • Issued on Credit- Stock Subscriptions
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2
Q

How many different APIC accounts can you have?

A

APIC- Common
APIC- Preferred
APIC- Treasury

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3
Q

What if there is no par value on the stock?

A

There will be no APIC account. It will all go to common stock for the price that was paid.

If they give you stated value, use that as par value

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4
Q

What are stock issuance costs?

A

Costs associated with registering and issuing the securities in the market (underwriter fees, accounting fees, legal fees, SEC registration fees)

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5
Q

How do you handle stock issuance costs

A

Not expense

Reduce the proceeds from issuance

Example: Assume 2,000 shares of $3 par common stock are issued for $12 per share and incurs $1000 of stock issuance costs.

DB: Cash (24,000-1,000) $23,000
CR: Common Stock (2,000*3) $6,000
CR: APIC- Common (2,000(12-3) - 1000) 17,000

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6
Q

When you issue stock in a nonmonetary transaction, how do you assign a value to the stock?

A

use the value with the more reliable fair value to record the transaction (sometimes it might the market value of the stock or the goods/services received)

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7
Q

If you have land which is appraised at $32,000 and a market price per share of $15 per share, which value would you use to record the sale of stock?

A

You would use the market price per share because it is actively traded in the market.

You never use appraisals for fair value

Usually stock price is more reliable!

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8
Q

What is stock issued on subscription?

A

Corporations may issue stock in exchange for a promissory note. The investor is going to pay at some point in the future over a long period of time. It is cheaper to buy it on subscription.

Shares are not issued until they are fully paid for. It is a credit in OE and establishes a receivable in OE netting the transaction to zero on the equity account.

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9
Q

How are subscriptions impacted on the financial statements?

A

Shares are not issued until they are fully paid for. It is a credit in OE and establishes a receivable in OE netting the transaction to zero on the equity account.

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10
Q

Example, Journal Entry: On January 1 an investor contracts for purchase of 1,000 shares of $1 par common stock at a subscription price of $10.

Example: Journal Entry: On June 30 the investor pays $10,000 and 1,000 shares are issued

Example: Journal entry: Now assume no payment was made on June 30 and on Dec 30 the investor pays $6,000 and defaults on the remainder

A

DB Stock Subscription Receivable- Contra OE 10,000
CR: Common Stock Subscribed 1,000
APIC- Common Stock 9,000

Cash 10,000
Stock Subscription Receivable 10,000

Common Stock Subscribed 1,000
Common Stock 1,000

Cash 6,000
Stock Subscription Received 6,000

Common Stock Subscribed 600
Common Stock 600

APIC- Common Stock 3,400
Common Stock Subscribed 400
Stock Subscription Receivable 4,000

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11
Q

What are the possible actions of a default on Stock Subscriptions?

A

It depends on the contract and applicable state law:

1) Investor receives a refund and returns the stock
2) Investor returns unpaid stock
3) Investor returns all shares and receives no shares

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