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FAR > Stockholder's Equity - 15A > Flashcards

Stockholder's Equity - 15A Flashcards

1
Q

What is the journal entry to record Common Stock?

A

Cash (Amount Received)
Common Stock (Par or Stated)
APIC (Plug)

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2
Q

What are some rights of Preferred Stock?

A
  1. Rights to receive dividends before common stockholders
  2. In the event of a liquidation, will be paid before common stockhoders
  3. Dividend pay out rate is fixed x par value
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3
Q

Cumulative Preferred stock is what?

A

Preferred stock that must accumulate if no dividends are paid ou that year; when the dividends are finally paid, these preferred stockholers must be paid in arrears before any common stock is paid

Note that no liability is recognized for dividends in arrears until they are anounced, but they must be disclosed

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4
Q

Convertible preferred stock is what?

A

Stockholders that have the option to exchange their stock for common stock

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5
Q

Can stock subscriptions be for common & preferred?

A

Yes

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6
Q

What is a stock subscription?

A

When an investor puts a down payment on a stock purchase

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7
Q

What are the journal entries for the purchase of a stock subscription?

A

Cash (Cash Rec’d)
Subscription Rec (Plug)
CS Subscribed (Par)
APIC (Price>Par)

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8
Q

What are the journal entries for the cash receipt and issuance of stock subscription?

A

Cash (Balance)
CS Subscribed (Par)
Subscriptions Rec (Balance)
CS (Par)

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9
Q

How is the Subscriptions Receivable account recorded and where is it listed on the BS?

A

It is a contra-equity account and is shown after CS Subscribed on the BS

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10
Q

When dealing with stock subscriptions, when is the common stock issued?

A

When the stock subscriptions are PAID IN FULL

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11
Q

What are the two methods of recording Treasury Stock?

A
  1. Cost Method - Goes in at cost and comes out at cost

2. Par Value Method

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12
Q

What is Treasury Stock?

A

When a company repurchases it’s own shares on the open market
Contra-SHE Account

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13
Q

How is Treasury Stock recorded?

A

On the BS as a reduction in SHE

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14
Q

What are the journal entries for the Cost Method of buying Treasury Stock?

A 
Treasury Stock        (Cost)
     Cash                         (Proceeds)
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15
Q

What are the journal entries for the Cost Method of selling Treasury Stock?

A

For a Gain:
Cash (Proceeds)
Treasury Stock (Cost)
APIC - T/S (Plug)

For a Loss (Assume No Previous PIC from Treasury Stock Gains)
Cash (Proceeds)
Retained Earnings (Plug)
Treasury Stock (Cost)

For a Loss (PIC from Treasury Stock Gains Present)
Cash                      (Proceeds)
APIC - T/S             (Plug 1st)
R/E                        (Plug 2nd)
     Treasury Stock             (Cost)
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16
Q

What two transactions make up the Par Value method?

A
  1. Purchase of Treasury Stock is treated as “retirement”

2. Selling of Treasury Stock is treated as “New Issue”

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17
Q

What are the journal entries for buying Treasury Stock under the Par Value Method?

A

If TS is bought for > Issue Price
Treasury Stock (Par)
APIC (Orig Pr.-Par)
RE (Plug)
Cash (Paid)

If TS is bought for < Issue Price
Treasury Stock (PAR)
APIC (Issue - PAR)
Cash (Paid)
APIC - T/S (Plug)

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18
Q

What are the journal entries for selling Treasury Stock under the Par Value Method?

A

Cash (Proceeds)
Treasury Stock (Par)
PIC - In Excess of Par (Plug)

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19
Q

Is SHE affected by the type of method used?

A

No

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20
Q

What is the Retirement of Stock treated like?

A

Treasury Stock

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21
Q

What are the journal entries to retire stock?

A

For a Loss:
Common Stock DR
APIC DR
RE DR
Treasury Stock CR

For a Gain:

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22
Q

What is the journal entry for dividend declaration?

A

Retained Earnings DR

Dividends Payable CR

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23
Q

Is SHE reduced on the date of declration? Payment Date?

A

Yes. NO.

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24
Q

At the dividend payment date, what are the journal entries?

A

Dividends Payable DR

Cash CR

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25
Q

What is the first thing that must be done before declaring a property dividend?

A

Change the value of the asset from book value to FMV

26
Q

What are the journal entries to declare a property dividend?

A

Investment Property DR
Gain on Disposal of Asset CR
RE DR
Property Div Payable CR

27
Q

When does a liquidating dividend occur?

A

When a company issues a dividend in excess of it’s retained earnings

28
Q

What are the journal entries for a liquidating dividend?

A 
APIC                           (Amount)
     Dividend Payable         (Payable)
29
Q

Does a liquidating dividend decrease R/E?

30
Q

What is a script dividend?

A

A promise to pay dividends in the future with the possibility of interest

31
Q

What are the journal entries to record a script dividend?

A

Declaration:
R/E DR
Script Div Payable CR

Payment:
Script Div Payable DR
Interest (Possible) DR
Cash CR

32
Q

What are the two types of stock dividends?

A 
1. Small - 0 - 25%
Declaration:
Retained Earnings             (FMV)
     C/S Distributable                (PAR)
     APIC - In Excess of Par      (Plug)

Payment:
C/S Distributable (PAR)
C/S (PAR)

  1. Large - > 25%
    Declaration:
    Retained Earnings (PAR)
    C/S Distributable (PAR)

Payment:
C/S Distributable (PAR)
C/S (PAR)

33
Q

Are there journal entries for a stock split?

34
Q

Do Stock Dividends or Stock splits affect total SHE?

35
Q

What are Appropriations of Retained Earnings?

A

Move money out of RE so this cannot be used for Dividends

Retained Earnings DR
Reserve for RE CR

36
Q

When valuing stock options, they must be valued how?

A

At FMV of an option with similar terms and conditions

37
Q

If there is a service (waiting) period to exercise stock options, how are they recorded?

A

As Deferred Compensation Expense and amortized SL over the service period

Note: If there is not a Service Period, then compensation expense would be recorded immediately

38
Q

What is the journal entry to record Stock Options that do not have the option to exercise immediately?

A

Establishment of Plan:
Deferred Comp Exp DR
Stock Options Outst. CR

Years 1 - 5 (Amort of Deferred Exp)
Comp Expense DR
Deferred Comp Exp CR

After Option is Exercised
Cash (Opt. Price)
Stock Options Outst. DR
Common Stock (Par)
APIC (Plug)

39
Q

What type of account is Stock Options Outstanding?

A

APIC with the Deferred Comp Exp being a contra account to APIC

40
Q

If asking for the total amount of SHE increase from stock options, it will always be the amount of what?

A

The cash received from the Stock Options when exercised

41
Q

What is Stock Appreciation Rights?

A

Similar to stock options except no cash outlay is required by the employee. Instead, the company will pay the employee cash for the appreciation of the stock above a predetermined amount

42
Q

With SAR, what account is the next year reconciled to?

A

The balance sheet liability account

Liability under SAR Plan

43
Q

Expense accounts are closed to where?

44
Q

What are the journal entries to record SAR?

A

Comp Exp DR

Liab. under SAR CR

45
Q

What is the Statement of Affairs?

A

During bankruptcy, a company prepares this to present the current market values of the assets & equity interests

46
Q

How does the Statement of Affairs classify assets?

A
  1. Assets pledged with fully secured creditors
  2. Assets pledged with partially secured creditors
  3. Free assets
47
Q

What happens to partially secured creditors when the assets pledged to them are not enough to cover the debt?

A

The remaining amount becomes unsecured

48
Q

What is a Quasi Reorganization?

A

Alternative to bankruptcy for companies that are paying their bills but have a deficit in R/E

49
Q

What are the steps to proceed with a Quasi Reorganization?

A
  1. Get proper authorization from stockholders & creditors where required
  2. Revaluation of current assets
    R/E DR
    Assets CR
  3. Eliminate the Deficit
    PIC DR
    R/E CR
    *if there is not enough PIC to eliminate the deficit, then you will have to debit C/S by reducing the Par Value and transfer this to PIC to cover the deficit
50
Q

A Quasi Reorganization must be included in the footnotes for how long?

A

10 years from the date of the reorganization

51
Q

What is a Stock Right?

A

Before additional stock is offered to the public, it must be offered to existing shareholders to give them the option to keep their percentage ownership from diluting (Preemptive Privilege)

No journal entry is made when the announcement is made

52
Q

What is the Rate of Return on Common Stockholders Equity ratio?

A

Measures the return earned on the stockholder’s investment in the company

NI Available to Common Stockholders/Avg Common Stockholders Equity

*Must remove Preferred stock from NI first

53
Q

What is the debt to equity ratio?

A

Shows creditors the corporations ability to sustain losses

Total Debt (All Liab)/Stockholder’s Equity

54
Q

What is the Book Value of Common Stock ratio?

A

Common SHE/Shares Outstanding

55
Q

IFRS Differences from US GAAP:

A
  1. IFRS does not have a comprehensive set of requirements for SHE, but gives rules for disclosure
  2. Stock authorized, issued, and outstanding must be disclosed
  3. Subscribed Stock is known as Calls
56
Q

Mandatory Redeemable Stock is treated as what under both IFRS & US GAAP?

A

A Liability

57
Q

Compound Financial Instruments that contain both elements of Debt & Equity (Ex: Convertible Bonds) are treated how under IFRS & US GAAP?

A

IFRS - Liability & Equity

US GAAP - Liability

58
Q

Which methods under IFRS may be used to account for Treasury Stock?

A
  1. Cost Method
  2. Par Value Method
  3. Constructive Retirement Method
59
Q

If stock options are not exercised, is the compensation expense reversed?

A

No. As long as the services are rendered by the individual the stock options granted to completed those services in full

60
Q

How is Diluted EPS configured?

A

(NI + Interest Exp.)/(W/A Shared of C/S Outst. + Shares of Convertible P/S & Bonds)

61
Q

When do dividends become a liability?

A

When declared

62
Q

Does Treasury Stock decrease Common Stock authorized, issued, or outstanding?

A

Only outstanding

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