Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR 2014 > Stockholders Equity > Flashcards

Stockholders Equity Flashcards

1
Q

When common stock and preferred stock are issued in a lump sump purchase- how is APIC allocated?

A

APIC for each is allocated by its respective % of the total FMV of the shares x the proceeds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When is APIC recorded on a stock subscription?

A

APIC increases on date subscription is recorded - not on the date paid for or issued

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

To what extent is retained earnings restricted if legally restricted due to Treasury Stock?

A

It will be restricted to the extent of the balance in the Treasury Stock account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When are dividends in arrear recorded for cumulative preferred stock?

A

They are not accrued until declared.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

When are dividends in arrears included as a disclosure and not an accrual in the financial statements?

A

If a year passes and no Cumulative Preferred Stock is declared- then the dividends in arrears are included as a disclosure - not an accrual in the Financial Statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the gain or loss when a non-monetary asset is distributed to a shareholder?

A

The gain or loss is the difference between the FMV of the asset distributed at the date of distribution and its carry amount on the company’s books

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the effect on retained earnings when a non-monetary asset is distributed to a shareholder?

A

The effect on Retained Earnings is the Carrying Amount of the asset

RE will be debited when the dividend is declared for the FMV of the asset- which is more (or less) than the carrying amount

Gain/Loss recorded when the asset is distributed will offset the original effect of the debt to RE and will be a wash

The net effect of the entry is that RE will decrease by the CV of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

When is Retained Earnings debited for FMV of Stock for a stock dividend?

A

When Stock Dividend is less than 25% of Common Stock outstanding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When is Retained Earnings debited for Par Value for a stock dividend?

A

When Stock Dividend is greater than 25% of common stock outstanding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the effect of a stock dividend or a stock split on total shareholder equity?

A

Stock dividends and stock splits both have no effect on Total Shareholder Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the affect on APIC from a stock split?

A

Stock splits only affect par value - APIC remains the same.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When is compensation expense recorded at the time of grant for a stock option?

A

Compensation expense is recorded at the time of grant if options are exercisable immediately

They are based on past service.

Expense recognized : FV Stock Option x # of Shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What interest rate is used to discount stock options?

A

The risk-free interest rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What date is used as the measurement date for share-based payments classified as liabilities?

A

The settlement date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How are compensation costs for share-based payments classified as liabilities measured?

A

Compensation costs for share-based payments classified as liabilities are measured by the change in the fair value of the instrument for each reporting period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the net increase to shareholder equity in a reorganization where a company pays cash and issues stock to satisfy unsecured creditors?

A

Net increase to SHE : Gain on settlement of debt + Credit to SHE from stock issuance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the primary purpose of a quasi-reorganization?

A

To eliminate a deficit balance in RE by restating its assets to Fair Value

It does not directly protect a company from its creditors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How is return on Common Stockholder’s Equity calculated?

A

(Net Income - P/S Dividends) / Average Common Stockholders Equity

Note: Average CSE : Common Stock + RE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How is book value per share of common stock calculated?

A

Total Common Stock
- Total Preferred Stock
- P/S Dividends in Arrears
- P/S Liquidation Premium
:Total Book Value

Book Value per Share : Total Book Value / Shares outstanding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How is the dividend per share payout ratio calculated?

A

Dividends per share / earnings per share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How is basic Earnings Per Share (EPS) calculated?

A

(Net Income - Preferred Dividends) / Average C/S Outstanding

Note - If cumulative- subtract the P/S dividend regardless of whether or not they’re declared.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

For EPS purposes- which date is used for calculation purposes when a stock split or stock dividend has occurred?

A

For EPS purposes- treat C/S stock splits or stock dividends as if they occurred at the beginning of the year- regardless of when actually issued during the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

For which areas is EPS required to be shown?

A

EPS is only required to be shown for Income from Continuing Operations and Net Income.

All others (discontinued operations- extraordinary items) can be shown on the Financial Statements or in the notes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

When do stock options increase share outstanding?

A

Only if they are dilutive.

Their exercise price is LESS than the market value

If not- you ignore them in the calculation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How is EPS calculated when convertible bonds are taken into consideration?

A

[Net Income + Bond Interest (Net of Tax)] / (Average Common Stock Shares + Convertible Equivalents)

Bond interest is added back because if converted- there would be no bond interest expense

Contingent Issue Agreements are included in Diluted EPS if contingency is met

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How should stock issued for services be recorded

A

At FV of stock issue or FV of service received whichever is more reliable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the proportional method and when is it used

A

Used with lump sum purchase
Both FV known
Allocate based on relative FV

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is incremental method and when is it used

A

Used with lump sum purchase
Only some FV known
Allocate price to FV of know and remainder to unknown FV

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Calculate CS outstanding

A

Issued shares - TS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

How is convertible PS recorded

A

As preferred stock until converted

No included in CS shares outstanding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What method is used for conversion of PS

A

BV method

No G/L

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Calculate APIC after PS conversion

A

CV of PS less BV of CS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Journal entry for issue of PS with a detachable warrant

A

DR cash received
CR PS (par)
Cr APIC - PS (FV PS - par)
Cr APIC - warrant (plug)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Journal entry for stock warrant exercise

A

Dr Cash
Dr APIC - warranty (prev calc)
Cr CS (par)
Cr APIC CS (plug)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

When do warrants increase SE

A

When cash received on exercise of warrant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

When does APIC increase on stock subscription and when is stock issued

A

APIC increases on date stock subscription paid or issued

Stock issued when total subscription price paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Journal entry or stock subscription on contract date

A

Dr Cash (if any)
Dr Subscription receivable (bal due)
Cr CS subscribed (stated value)
Cr APIC (plug)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Journal entry for stock subscription on date balance collected

A

Dr Cash (bal due)
Dr CS subscribed
Cr CS (stated value)
Cr Subscription revenue (balance due)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Journal entry for TS reissue by cost method

A

Dr cash
Cr TS (acquired price x shares)
Cr APIC TS (price - acquired price x shares )

40
Q

How to record purchase of TS via cost method

A

Debit TS for price paid x shares

41
Q

How is treasury stock recorded on balance sheet

A

Reduction in SE not asset

42
Q

Journal entry for TS par value method

A 
Dr TS (par when purchased)
Dr APIC (par - original issuance)

Difference between original issuance price and cost of TS credited to PIC - TS

43
Q

How is a stock retirement recorded

A

CS and APIC removed from books based on original issuance, cash credited for cost of shares, remainder to RE

44
Q

How are declared dividends allocated

A

First preferred dividend (and cumulative if in arrears)
Then common dividend
Then divide remainder between preferred and common based on par value dollars outstanding

45
Q

What is cumulative PS dividend and how is it reported

A

Dividends not paid in a year accumulate

Must be disclosed in FS not accrued if not declared

46
Q

What is recorded when a dividend is declared

A

Dividend liability , reduce RE

47
Q

When is interest recorded

A

Not an expense or liability until incurred

48
Q

What is a scrip dividend

A

Dividend not paid in cash when declared (promissory note)
Debit RE on issue date
Debit interest expense only when incurred

49
Q

What is a liquidating dividend

A

Dividend in excess of RE

Decrease APIC

50
Q

How are dividends declared in extractive industries

A

Dividends declared to extent of depletion expense + accumulated income

51
Q

How is a transfer of a Nonmonetary asset to shareholder recorded

A

At FV and recognized gain/loss FV - CV

52
Q

How is a property dividend where CV > FV recorded

A 
Dr loss
Cr inventory (to adjust asset to market)

Dr RE
Cr dividend payable

53
Q

How is a stock dividend recorded

A

Debit to RE at FV if dividend less than 20-25% of outstanding stock

Debit RE at par value if dividend more than 20-25% of outstanding stock

54
Q

How does stock dividend impact B/S

A

Reclassification of SE , no asset or liability

Dr RE
Cr CS
Cr APIC

55
Q

Are funds for bond retirement an appropriation of RE

A

No, unless managements decides to appropriate

56
Q

What event may trigger and automatic appropriation of RE

A

Acquisition of TS

57
Q

What are share based payments and how are they recognized

A

Compensation via stock
Compensation expense at date of grant = shares x FV of option

If not immediately vested recognize ratably over service period

58
Q

How do share based payments affect SE

A

Increase in SE by shares x option price

59
Q

What are stock appreciation rights

A

Receive cash equal to excess of market price of stock on exercise date over market price at grant date

60
Q

Calculate stock compensation plan expense

A

FV of instrument - contributions of employees

61
Q

What rate is used to discount exercise price option and future dividend stream for stock based compensation

A

Risk free rate

62
Q

How is compensation cost for share based payments to employees classified

A

As a liability measured by change in FV of instrument for each reporting period

Final measurement date is settlement date

63
Q

How is cash retained as a result of excess tax benefit in connect with share based payment recorded on FS

A

As cash inflow from financing operations

64
Q

How are share based payments reflected in dilutive EPS

A

Included In denominator at weighted average to reflect period of time outstanding unless considered antidilutve

65
Q

Calculate basic EPS

A

NI - preferred dividend / CS outstanding

66
Q

How are stock dividend and splits treated in EPS

A

Treat shares outstanding as issue for the entire period

67
Q

How to treat shares issued during period for EPS

A

Calculate at weighted average shares ( shares x months outstanding /12)

68
Q

How are stock dividends and splits treated for comparative purposes

A

Restate previous year EPS for new stock splits and dividend as if the occurs in prior years

69
Q

When is EPS required to be reported

A

For income from continuing operations and net income only

70
Q

How are stock dividends and splits treated for EPS when occurring after EoY but before FS issue

A

Adjust unissued FS for stock split dividend and disclose in FS notes

71
Q

When are options considered dilutive

A

When exercise price <market price

72
Q

What is the treasury stock method for dilutive EPS and how is it calculated

A

Calculates options effect on denominator of EPS

Option Shares issued - (option proceeds /avg market price ) = shares issued not reacquired

Add to CS outstanding

73
Q

Calculate dilutive EPS

A

NI - preferred dividend + preferred dividend not paid (if converted) / CS shares + shares of converted PS

74
Q

What affects the denominator of dilutive EPS

A

All potential common shares that reduce current EPS

75
Q

Calculate dilutive EPS incremental per share effect

A

(Bond int x bond ) - tax rate x (bond int x bond ) / shares per bond (if converted)

76
Q

What is the assumed conversion method for dilutive EPS

A

Numerator increase by bond interest not incurred and denominator increases by weighted average shares outstanding

77
Q

What is the if converted method of computing EPS

A

Assumes convertible securities are converted at beginning of earliest period reported or time of issuance if later

78
Q

How is interest expense handled of convertible security is deemed dilutive

A

Interest expense added back to net income.

79
Q

How is cash available for unsecured creditors calculated

A

Free assets + excess cash from assets from assets pledged with secured creditors - priority liabilities

80
Q

How are contingent issues agreements treated for dilutive EPS

A

Included in dilutive EPS of contingency met

81
Q

How is the amount realized by a secured creditor calculated in bankruptcy

A

FV Secured Collateral + ( debt - collateral x rate )

82
Q

What will bankruptcy trustee do with Unrecorded assets and liabilities

A

Recorded asset/Liabilities and record a gain or loss

83
Q

What is the primary purpose of a quasi reorganization

A

Eliminate deficit in RE so dividends can be paid without waiting for future earnings

84
Q

Steps in quasi reorganization

A
  1. Revalue assets
  2. Reduce par
    Decrease CS and increase APIC
  3. Write off deficit to APIC
    Increase RE to $0 and decrease APIC
85
Q

How are the issue of stock rights recorded

A

Only memorandum entry

86
Q

How is the redemption of stock rights treated

A

As a dividend

87
Q

How are stock warrants treated

A

Make memo entry until exercised

88
Q

Calculate ESOP compensation expense

A

Amount to be charged to expense by employer

89
Q

How is an ESOP liability recorded

A

Obligation of ESOP recorded as liability if guaranteed by employer
Dr SE
Cr note payable

90
Q

How is treasury stock and net unrealized loss on AFS securities reported

A

In SE as contra SE account

91
Q

How is treasury stock treated in stock split

A

If treasury stock protected from dilution then TS increased by stock split

92
Q

How do stock options increase SE

A 
Cr CS (par x shares)
Cr APIC (option price - par x shares)
93
Q

Calculate return on CS equity

A

NI - dividend / Avg CSE

94
Q

Calculate BV per share

A

SE / CS

95
Q

Calculate dividend payout ratio

A

Dividend per share / EPS

96
Q

How are instruments that have both an equity and debt portion reported under IFRS

A

Report equity and liability parts separately

97
Q

Under IFRS what are the TS methods

A

TS method, par value method, constructive retirement method

FAR 2014 (19 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions