Stockholder Equity ( CH 7) Flashcards
Book Value per Common Share
Book value per common share measures the amount that common shareholders would receive for each share if all assets were sold at their book value and all creditors were paid.
Mandatorily Redeemable preferred stock
Mandatorily redeemable preferred stock is issued with a maturity date. Similar to debt, mandatorily redeemable preferred stock must be bought back by the company on the maturity date and must be classified as a liability unless redemption is required to occur only upon the liquidation or termination of the reporting entity
Quasi - Reorganization
It’s an accounting adjustment. It allows a corporation with a significant deficit in retained to eliminate that deficit and have a fresh start. It also require formal approval by the shareholder
The purpose of a Quasi- reorganization are to restate overvalued assets to their lower fair value and to eliminate a R/E deficit.
Treasury Stock - Cost Method
The treasury shares are recorded and carried at their reacquisition cost. A gain or loss will be determined when treasury stock is reissued or retried. Losses may decrease R/E if the APIC from treasury stock account does not have a balance large enough to absorb the loss. Net income or R/E will never be increased through treasury stock transactions.
Retirement of Treasury stock
Treasury stock is acquired with the intent of re-tiring the stock and the price is paid in excess of the par or stated value , the excess may be charged against either 1) all paid in capital arising from past transactions in the same class of stock 2) or R/E . When it sold less than par or stated value, the difference must be credited to paid in capital.
Treatment of a small stock dividend < 20 -25%
When less than 20-25% of the shares previously outstanding are distributed, the dividend is treated as a small stock dividend because the issuance is not expected affect the market price of the stock. The FV of the stock divined at the date of decleration is transferred from R/E to Capital stock and APIC>
Treatment of a large stock dividend > 20-25%
When more than 20-25 % of the previously issued shares outstanding are distributed, the dividend is treated as a large stock dividend, as it may expected to reduce the market price of stock. The par value of the stock dividend is normally transferred from R/E to capital stock in order to meet legal requirement.
Compensatory stock option/purchase plan
Compensatory stock options and stock purchase plans are valued at the fair value of the option issued.
The exercise date is the date by which the option holder must use the option to purchase the underlaying.
The grant date is the date the option is issued -no J/E
Option vesting period
The vesting period is the period over which the employee has to perform services in order to earn the right to exercise the option. Compensation is recognized over the service period and this is generally the vesting period
Compensation expense under FV is measured by acceptable FV pricing model such as the Black Scholes option pricing model
Income Available to the Common Shareholders
Income available to common shareholder is determined by deducting from the line item income from continuing operations and net income
1) Dividend declared in the period on non cumulative preferred stock ( Regardless of wheather they have been paid)
2) Dividend accumulated in the period on cumulative P/S ( Regardless of whether they have been declared)
Complex capital structure
An entity has a complex capital structure when it has securities that can potentially be converted to common stock and would therefore dilute ( reduce) EPS ( of C/S). Both basic and dilutive securities EPS must be presented.
The basic EPS caculations ignores potentially dilutive securities in the weighted AVG. number of share outstanding calcualtions
Diluted EPS
The objective of diluted EPS is to measure the performance of an entity over the reporting period while giving effect to all potentially dilutive common share outstanding during the period. Potentially dilutive securities include
1) Convertible securities
2) Warrants and other options
3) Contracts that may be settle in cash or stock
4) Contingent Shares
Stock Dividends and stock splits
Stock dividends and stock splits must be treated as though they occurred at the beginning of the period for EPS Calculation. If a stock dividend or stock split occurs after the end of the period but before the financial statements are issued, those share should enter into the shares outstanding for the EPS calcualtions
Reverse stock splits would retroactivley reduce outstanding for all periods presented
Dilutive VS Anti-dilutive
Options and similar insturments are only dilutive when the AVG. market price of the underlying common stock exceeds the exercise price of the options or warrants.
Statement of Cash Flows
A statement of cash flows is a required part of a full set of F/S. The purpose of the statement of cash flows is to provide information about the source of cash and cash equivalents and the use of cash and cash equivalents
