Stockholder's Equity Flashcards
Subscription journal entries
Cash
Subscriptions Receivable
CS subscribed - at par
APIC -CS
Cash
CS subscribed
Common Stock - at par
Subscriptions receivable
To refund and cancel:
APIC - CS
Common stock subscribed
Subscriptions Receivable
Cash
To keep down payment:
APIC-CS
Common stock subscribed
APIC -forfeited subscriptions
Subscriptions receivable
Donation of stock by shareholder back to the entity
Donated Treasury stock - at fmv
APIC _TS
Treasury stock - cost method
COTS
repurchase - NO APIC
resell - APIC TS plug
retire - APIC TS plug
Treasury stock - always at repurchase cost
Treasury stock - par value method
PARTS
repurchase - APIC TS
resell - APIC TS
retire - NO APIC
Treasury stock - always at par
Preferred Stocks - dividend computation
CUMULATIVE , NON PARTICIPATING
preferred as to dividends receipt but NOT A GUARANTEE
If cumulative:
dividend in arrears
+ current year dividends
= total dividends to PS shareholders
net income
- PS dividends
= NI available to common stock holders
PREFERRED DIVIDENDS - non cumulative
participating
Dividends =
current year dividends
+ share of excess net income after
deducting CS share (relative par values)
Net income minus PS dividends Balance minus %(PS%) x CS total par value Balance to be allocated to both PS and CS by relative par values
Stock options - COMPENSATORY
NO ENTRY UPON GRANTING OF OPTIONS
At exercise, record like normal stock issuance.
Stock options - NON COMPENSATORY
record compensation expense based on fair value of the options when granted - when the stock options are issued.
GRANT DATE IS ISSUANCE DATE
- share based payment as equity
- share based payment as liability
Share based payment as equity (FV of grant date)
STOCK OPTIONS
use estimated FV at grant date
total compensation cost - amortized SL over
service period required (vesting period)
example: stock options
compute total compensation expense=
option fair value # of options
amortize this straight line
AT GRANT DATE:
APIC -deferred compensation (total)
APIC-stock options outstanding
AT YEAR END:
compensation expense
APIC -deferred compensation
AT EXERCISE:
cash (fv of stock)
APIC -stock options outstanding
Common stock
APIC -CS
AT EXPIRATION W/O ISSUANCE:
APIC -stock options
APIC - expired stock options
Share based payments classified as liabilities
STOCK APPRECIATION RIGHTS
stock or cash given equal to the difference in market value and some predetermined amount per share for a certain number of shares
record compensation expense with amount based on changes in market value of stocks before measurement date.
IF VESTED:
Compensation expense
Liability for appreciation rights
#increase in market price
computation:
increase in market price x time elapsed over total vesting years
up or down, reverse entry
Liability for appreciation rights
Cash
or APIC - if payable in shares
#exercise
Cash dividends
RECORD AT DECLARATION DATE
Retained earnings
Cash
Scrip dividends
RE
Notes payable
Stock dividends
Small less than 20%-25%
RE
CS
APIC-CS at FMV
Large greater than 25%
RE
CS - at par (no APIC)
Partial liquidating dividend
ANY DIVIDEND IN ESCESS OF RE IS LIQUIDATING DIVIDEND
RE - up to zero
APIC - balance/plug
Cash
Property dividends
Revalue the property first
Land
Gain on land
Retained earnings
Dividends Payable
Dividends payable
Land
Net effect to RE and SE is the Cv of the land
Net effect to NI is the gain on revaluation. FV-CV
Stock split
adjust the par value and # of shares only
memo entrty
Quasi reorganization
adjust assets to reduced market values
adjust par value of stocks
Common stock - to reduce par value
APIC - plug
Assets
Retained earnings
Stockholder’s equity presentation
PCANRAT
Treasury stock presentation
if cost method - last in SE
if par value method - contra equity account
Equity securities classified as debt securities
require shares to be sold back to the company upon termination of the agreement or death of the owner
there is an unconditional obligation for the corporation to redeem the shares at a specific date of occurrence of an event that is certain to occur - death
must be paid either in assets or variable amount of other equity securities
shares subject to mandatory redemption -
presented in the LIABILITY SECTION OF THE BS
**excluded in the EPS calculation:
mandatory redeemable PS
forward contracts to repurchase equity shares
RETIREMENT OF STOCK
DO NOT RECOGNIZE GAIN OR LOSS !!!
CS
APIC - CS
APIC - Retired stock (for loss)
Cash
APIC - Retired stock - for gain
NO GAIN RECOGNIZED IN RETIREMENT OF STOCKS!!!
PLUG IS ALWAYS APIC!!!
STOCK RIGHTS -to existing shareholders
At issuance: MEMO ENTRY ONLY
At lapse : NO ENTRY except when there is a provision that rights are paid by the entity if they are not exercised. Only then that an entry would be made:
Retained earnings
Cash
At exercise:
Cash
CS
APIC-cs
book value per share computation
total stockholders equity - preferred stock balance - preferred stock dividends including arrears = common stock total book value = NUMERATOR
total common shares issued
less: treasury # of shares
= common stock shares outstanding
= DENOMINATOR
COMMON STOCK BOOK VALUE / # OF COMMON SHARES OUTSTANDING
if PS transactions are insignificant, ignore them
COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES FOR EPS
Stock splits and stock dividends
ALWAYS CONSIDER THEM ISSUED AT THE BEGINNING OF THE YEAR
PREFERRED STOCK CONVERSION TO COMMON STOCK
compute # of shares of common stocks issued upon conversion
PS
APIC - PS
CS-at par
APIC - CS - PLUG
NO RETAINED EARNINGS IN BOND PREFERRED STOCK CONVERSION !!!
QUICK ANSWER: at conversion, CS is issued at par value
If asked about total stockholder’s equity balance, short cut way is to plus minus the total of the transactions that occurred during the year
example:
cs issued
treasury stocks acquired so on…
BOND CONVERSION TO COMMON STOCKS/PREFERRED STOCKS
APIC IS ALWAYS THE CREDIT PLUG
NO RETAINED EARNINGS HERE!!!
SOLD - MEANS
ISSUED SHARES
