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FAR > Stockholder's Equity (F7 M5-M7) > Flashcards

Stockholder's Equity (F7 M5-M7) Flashcards

1
Q

Outstanding vs. Issued stocks

A 
Issued = authorized capital stock issued. includes TS
Outstanding = stocks in hands of shareholders. not including TS
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2
Q

common shareholder’s equity formula

A

Total SHE (=A-L)

  • Preferred stock outstanding (greater of call or par value)
  • cumulative preferred dividend in arrears
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3
Q

book value per common share formula

A

common stock holder’s equity / common shares outstanding (issued - repurchased)

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4
Q

Participating preferred stock

A
  • distribute to PF including dividends in arrears
  • then distribute PF % to common shareholders
  • then pro rata the excess
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5
Q

Nonparticipating preferred stock

A
  • limited to dividends provided by preference

- do not share in excess unlike participating

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6
Q

Callable preferred stock

A

-may be repurchased at specified price by issuing corporation

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7
Q

Mandatorily redeemable preferred stock

A
  • classified as a liability

- UNLESS redemption is required to occur only upon liquidation/termination of reporting entity

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8
Q

Appropriations of retained earnings

A

some of retained earnings are not available for dividends because they are restricted for:

  1. legal/contractual reasons (bond indenture)
  2. discretionary act of management for contingency purposes (plant expansion)

-appropriation may be used to offset losses but can not be transferred to income

Dr. Retained earnings (unappropriated)
Cr. Retained earnings (appropriated)

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9
Q

Treasury stock

A
  • corporation’s own stock that has been issued and subsequently reacquired (but not retired)
  • not entitled to rights of ownership (voting or receiving dividends)
  • two methods of accounting: cost and legal (or par)
  • G/L are not included in determination of net income and are a direct adjustment to Stockholder’s Equity
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10
Q

Cost method - treasury stock

A
  • treasury stock recorded/carried at reacquisition cost
  • G/L determined when stock is reissued or retired
  • G/L is accounted by crediting/debiting APIC-Treasury Stock.
  • If APIC-TS is not enough to absorb loss upon reissue, RE can be decreased
  • net income/retained earnings will NEVER be INCREASED

Repurchase:
Dr. TS (at cost)
Cr. Cash

Reissue ABOVE cost:
Dr. Cash (selling price)
Cr. Treasury stock (at cost)
Cr. APIC-TS (plug/gain)

Reissue BELOW cost after above entry: 
Dr. Cash
Dr. APIC-TS (decreased for loss)
Dr. RE (excess of loss over APIC-TS)
Cr. Treasury stock (at cost)
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11
Q

Par method - treasury stock

A
  • Treasury shares are recorded by reducing amounts of par and APIC at time of original sale
  • G/L recognized immediately upon repurchase
Repurchase ABOVE issue price: 
Dr. Treasury stock (at par)
Dr. APIC-CS (reverse original APIC)
Dr. Retained earnings (loss/plug) 
Cr. Cash (at cost)
Repurchase BELOW issue price: 
Dr. Treasury stock (at par)
Dr. APIC-CS (reverse original APIC)
Cr. cash (cost)
Cr. APIC-TS (gain/plug)

Reissue shares:
Dr.Cash (selling price)
Cr. TS (at par)
Cr. APIC-CS (plug)

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12
Q

Retirement of treasury stock

A

-bought with INTENT of retiring

-cost method
Dr. CS
Dr. APIC-CS
Dr. RE (plug)
Cr. TS (cost)

-par method
Dr. CS (at par)
Cr. TS (at par)

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13
Q

Stock subscriptions

A

-Contractual agreement to sell a specified number of shares at an agreed-upon price

Dr. Subscriptions receivable (contra-equity)
Cr. Common stock “subscribed” (par)
Cr. APIC (plug)

Dr. Cash
Cr. Subscription receivable

Dr. Common stock subscribed
Cr. Common stock issued

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14
Q

Stock rights

A
  • provides existing shareholders with opportunity to buy additional shares
  • No JE until exercised/memo entry only

Dr. Cash
Cr. CS
Cr. APIC

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15
Q

Date of Declaration (dividend)

A
  • the date the board of directors formally approves a dividend
  • liability is created (dividends payable) and RE is reduced
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16
Q

Date of record

A
  • date directors specify names of shareholders to receive dividend
  • no JE
17
Q

Date of payment

A
  • dividend is actually disbursed

- reduce dividends payable and cash

18
Q

Cash dividends

A

-financial outflow

only paid on authorized, issued, AND outstanding shares (so not TS)

19
Q

Property in kind dividend

A
  • distribute noncash assets
  • date of declaration: property to be distributed is restated to FV and G/L should be recognized in income
  • dividend liability should be recorded at FV

EX:
NBV = 30 (cost=70 and AD = 40)
FMV = 50
gain = 20

Dr. RE (FV)
Dr. AD
Cr. property (cost)
Cr. Gain

20
Q

Scrip dividends

A

-notes payable where corporation commits to paying dividend at a later date

-date of declaration
Dr. RE
Cr. Notes payable

21
Q

Liquidating dividends

A
  • dividends to shareholders exceed retained earnings

- dividends in excess of RE is charged (debited) to APIC and then CS/PS

22
Q

Stock dividends

A
  • distributes additional shares to shareholders. no cash out.
  • no dividend income to owner so decrease in cost basis

treatment depends on whether small or large

23
Q

Small stock dividend

A

<25%
-reduce RE by FMV

Dr. RE (FMV)
Cr. CS (Par)
Cr. APIC (Plug)

24
Q

Large stock dividend

A

> 25%

-reduce RE by par value

25
Q

Stock splits

A
  • no JE/memo entry only

- no change in total equity or total legal capital

26
Q

Noncompensatory employee stock option

A
  • not in lieu of salary
  • no JE until employee buys stock/do NOT recognize compensation expense

meets ALL requirements:

  • all full time employees may participate
  • eligible to employees equally
  • time permitted to exercise is limited to reasonable period
  • discount is not greater than reasonable

Under IFRS*** - all employee stock plans are compensatory

27
Q

Compensatory stock option

A
  • valued at FV of options issued

- compensation expense calculated at grant date is allocated over service period (time between grant and vesting date)

28
Q

Compensatory stock option journal entries

A

Grant date - no JE

Service period
Dr. Compensation expense
Cr. APIC - Stock options

Exercise options:
Dr. Cash (at exercise price NOT fmv)
Dr. APIC- Stock options (reverse)
Cr. CS (par)
Cr. APIC (plug)

Expiration of options
Dr. APIC - Stock options
Cr. APIC - expired stock options

29
Q

Stock appreciation right (SAR)

A
  • entitles employee to receive excess of market price at exercise date over predetermined amount at grant date
  • excess * by number of rights outstanding is recorded as compensation exp and liability
  • must be adjusted annually PROSPECTIVELY

Dr. Compensation exepense
Cr. Liability for SAR plan

Date of exercise:
Dr. Liability for SAR plan
Cr. Cash

FAR (15 decks)

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