Stockholder's Equity

Question 1

Irredeemable PS

Answer 1

No specific maturity date and stockholders can only get their capital back if the company winds up in liquidation

Question 2

Redeemable PS

Answer 2

Company is obligated to buy back shares after a certain period

Question 3

Cumulative PS

Answer 3

Dividend acummulations occur where holders are entitled to receive dividends for the current period even if dividends aren’t declared

Question 4

Fully participating preferred shares

Answer 4

holders have the right to participate in additional dividends beyond their fixed percentage; surplus dividends beyond those paid out based on a pro rata basis

Question 5

How are redeemable preferred shares recorded?

Answer 5

debt

Question 6

Noncumulative

Answer 6

dividends that weren’t declared in prior periods don’t accumualte

Question 7

partially participating

Answer 7

entitled to receive additional dividends but the surplus has a cap

Question 8

Convertible preferred stock

Answer 8

holders have a right to convert shares into a fixed number of common shares at a predetermined rate

Question 9

Callable preferred stock

Answer 9

right but not the obligation to repurchase or “call” the shares at a predetermined price

Question 10

How are irredeemable PS recorded?

Answer 10

equity

Question 11

journal entry for issuing a subscription

Answer 11

Dr. Cash
Dr. Subscription receivable
Cr. CS - Subscription
Cr. APIC - CS

Question 12

journal entry for receiving balance of stock subscription and stocks are issued

Answer 12

Dr. Cash
Cr. Subscription receivable
Dr. CS - Subscription
Cr. CS

Question 13

Journal entry for stock subscriptions forfeited

Answer 13

Dr. CS - Subscription
Dr. APIC - CS
Cr. Subscription receivable
Cr. Subscription forfeited

Question 14

Journal entry for stock subscriptions cancelled

Answer 14

Dr. CS - Subscriptions
Dr. APIC - CS
Cr. Cash
Cr. Subscription receivables

Question 15

APIC treasury

Answer 15

repurchased stocks are sold for more than the repurchase price under the cost method and when stocks are repurchased at less than the original issue price under par value method

Question 16

APIC warrants

Answer 16

value allotted to detachable warrants when issued with bonds or preferred stock

Question 17

Ending retained earnings formula

Answer 17

beg RE
+/- Net Income/Loss
+/- AOCI
-Dividends

Question 18

How are property dividends valued

Answer 18

fair value and adjusted for any gain or loss

Question 19

how are small stock dividends recorded?

Answer 19

fair value

Question 20

how are large stock dividends declared?

Answer 20

par value

Question 21

How are scrip dividends recorded

Answer 21

liability

Question 22

Journal entry to record a scrip dividend date of declaration

Answer 22

Dr. RE
Cr. Scrip dividend payable

Question 23

journal entry to record a scrip dividend at the balance sheet date

Answer 23

Dr. interest expense
Cr. interest payable

Question 24

journal entry to record a scrip dividend at the date of payment

Answer 24

Dr. Scrip dividend payable
Dr. Interest payable
Cr. Cash

Question 25

Where do liquidating dividends come from

Answer 25

APIC or equity accounts

Question 26

when is the cost method used

Answer 26

entity plans to resell the share so gains/losses are recognized

Question 27

journal entry to record repurchase of shares (cost method)

Answer 27

Dr. treasury stock
Cr. cash

Question 28

Journal entry to record gain on reissuance (cost method)

Answer 28

Dr. Cash
Cr. TS
Cr. APIC - TS

Question 29

Journal entry to record loss on reissuance

Answer 29

Dr. Cash
Dr. APIC - TS
Dr. Retained earnings (if APIC not sufficient)
Cr. Treasury stock

Question 30

when is the par value method used

Answer 30

when entity plans to hold the TS indefinitely

Question 31

when are gains/losses recognized for cost vs par value

Answer 31

cost: on reissue
par: on repurchase

Question 32

journal entry to record repurchase (par value)

Answer 32

dr. treasury stock
dr. APIC - CS
dr. APIC - TS (loss)
cr. APIC - TS (gain)
cr. Cash