Stockhokders Equity Flashcards
What is a common stock?
This is simply a security that represents ownership in a corporation whose holders elect the board of directors and vote on corporate policies.
What is a preferred stock?
This is simply a form of company equity. Owners of preferred shares have priority over common equity owners for dividend payouts and firm liquidations.
What certain changes from OCI are excluded from net income?
OCI includes certain changes that are not report in net income because they don’t affect business performance. There are:
D - derivative cash flow hedges
E - Excess adjustment of pension projected benefit obligation and FV of plan asset at year end.
N - net unrealized holding gains and losses on available-for-sale debt securities.
T - Translation adjustments from foreign currency.
What are the 3 important dates when a company distributes cash dividend?
The important dates are date of declaration, date of record and date of payment.
How to record cash dividends?
- On date of declaration, Retained earnings is debited and dividends payable is credited.
- On date of record, there is no entry.
- On date of payment, dividends payable is debited and cash is credited.
What is a noncontrolling interest?
This is simply the portion of equity (ie. net assets) in a subsidiary not attributable, directly or indirectly to a parent corporation.
What happens when rights are issued?
When rights are issued without consideration, no entry is made. The company makes a notation of the pertinent information, however so that the rights can be properly disclosed.
During a compensatory stock option plan for which the grant, measurement and exercise date are all different the stock options outstanding account should be reduced at what period?
The stock options outstanding should be reduced at the exercise date. During the time the options are exercised, common stock and additional paid-in-capital are increased while cash is increased for the amount received and the stock options outstanding account is decreased for the amount that relates to the options being exercised.
What is the Quasi-Recognition?
This is when a corporation eliminates deficit their retained earnings, which gives the company a fresh start.
Typically a corporation with a large deficit balance(ie. debit) in retained earnings may face potential legal proceedings such as bankruptcy or may even be forced to legally reorganize as a new entity. A corporation can only do this once shareholders approves this.
What are the 3 main steps of the Quasi-Reorganization?
- Revalue assets and liabilities to fair value, if required.
- The deficit in retained earnings is eliminated.
- Paid-in-capital (ie. par value and/or APIC) is adjusted, but not below zero
What is a treasury stock?
This is simply a company’s stock that is repurchased but not retired. A company is not allowed to report owning it’s own stock as an investment, however a treasury stock is recorded as a contra account(ie. debit balance) to stockholders’ equity.
How do you record property dividends?
A company may typically choose to pay out dividends without issuing cash, but rather with an asset(ie real estate, market securities). By doing so the property dividends are recorded at the fair value(FV) of the property on the date of declaration. If the FV differs from the net carrying value, a gain or loss is recognized. This results in a decrease of RE due to the FV of the property on the date of declaration.
What is the order of dividend payments?
- Dividends in arrears(ie. cumulative preferred stock)
- Current year annual dividend(Preferred stock)
- Current year declared dividend(Common stock)
What is a shared-based compensation?
This is a payment classified as equity(ie. stock options) which are specifically designed to be part of an employee’s compensation.
Compensation expense is recognized as the services are performed in accordance with the matching principle.
What is GAAP’s requirement for the matching principle type of share-based payment?
GAAP requires this type of share-based payment to be measured at the fair value of the equity instruments on the grant date (ie. measurement date).
