Stockholder's Equity

Question 1

How is Treasury Stock recorded under Cost Method?

Answer 1

Cost In/Cost Out
Contra Equity account

1. Repurchase
   DR T/S @ Cost
   CR Cash @ Proceeds

2. Resell
DR Cash @ Proceeds
DR APIC - T/S or R/E OR
       CR APIC - T/S
       CR T/S @ Cost

3. Retire
DR C/S @ Par
DR APIC C/S @ Original
       CR T/S @ Cost
       CR APIC - T/S

Question 2

How is Treasury Stock recorded under Par Value Method?

Answer 2

Par In/Par Out
Contra C/S account

1. Repurchase
DR APIC - C/S @ Original
DR T/S @ Par
       CR Cash @ Proceeds
       CR APIC - T/S - Difference

2. Resell
   DR Cash @ Proceeds
   CR T/S @ Par
   CR APIC - C/S - Difference
3. Retire
   DR C/S @ Par
   CR T/S @ Par

Question 3

When is the Cost Method for Treasury Stock used?

Answer 3

When a company intends to resell them soon

Question 4

When is the Par Value Method for Treasury Stock used?

Answer 4

When a company intends to retire or hold them indefinitely

Question 5

How are share-based transactions with non employees recorded?

Answer 5

Either the FV of goods/services received, OR
the FV of the equity exchanged
Whichever more reliable

Question 6

When is compensation expense recognized?

Answer 6

When stock options are considered compensatory

Question 7

What criteria must be met for stock options to be non compensatory?

Answer 7

1. One must be met:
   a. Terms are comparable to other shareholders
   b. Purchase discount no more than 5%
2. Plan must be available to most employees
3. Employee must have less than one month to make purchase

Question 8

How are share-based transactions with employees recorded?

Answer 8

At the FV of the equity issued

Question 9

How are share-based payments classified as equity recorded?

Answer 9

Measurement date = Grant date

Date of Grant
DR Deferred Compensation
CR APIC - Stock Options O/S

If immediately exercisable, recognize total as compensation expense, no deferred compensation

If vesting required, recognize over period from grant date through date options become exercisable

Question 10

How are share-based payments classified as liabilities recorded?

Answer 10

Measurement date = Exercise date

Question 11

How are small stock dividends recorded?

Answer 11

< 20-25% @ FMV

Question 12

How are large stock dividends recorded?

Answer 12

> 20-25% @ Par

Question 13

Which dividends do not reduce Stockholder’s Equity?

Answer 13

Stock dividends

Stock splits

Question 14

How is liquidating dividend recorded?

Answer 14

As a reduction to APIC

Question 15

How is a property dividend recorded?

Answer 15

Reduce R/E @ FMV
Reduce property @ cost
Difference is G/L

Total effect on Stockholder’s Equity is R/E +/- G/L

Question 16

How is Statement of Retained Earnings presented?

Answer 16

Beginning R/E
\+/- Prior Period Adjustments
= Adjusted Beg. R/E
\+ NI Current Year
- Dividends
= Ending R/E

Question 17

When do dividend recipients record revenue and receivable?

Answer 17

At the date of record