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FAR- F7 > Stockholders equity > Flashcards

Stockholders equity Flashcards

1
Q

At what point is retained earnings decreased on a cash dividend of common stock?

A

When the divident is DECLARED, not paid

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2
Q

When is retained earnings affected from the proceeds of treasury stcok sold?

A

When the shares are sold below cost.

and

The difference exceeds any additional paid-in-capital from treasury stock.

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3
Q

What does the sale of previously unissued stock mean?

A

The company issued more stock, more shares are now outstanding.

They did not SELL any stock, since it was previously unissued.

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4
Q

If you sell treasury stock, what does it do to your outstanding shares?

A

It adds to them.

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5
Q

If treasury stock transactions were recorded under the “cost method,” and the resale of treasury stcok was at a price that exceeded its acquisition price, how are retained earnings affected?

A

Retained earnings are not affected.

It is only affected if its LESS than its acquisition price.

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6
Q

**Cost **- Original Issue

10,000 shares of $10 par value common stock sold for $15 per share.

Cash (10,000 x $15) $150,000

   Common stock  (10,000 x $10 par) $100,000

      APIC- C/S           (10,000 x $5 (15-10) $50,000
A

Buy back above Issue price

200 shares repurchased for $20 per share

        Treasury stock (200 x $20)     $4,000

                                       Cash   (200 x $20)          $4,000
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7
Q

Reissue above Cost

100 shares repurchased for $20 were resold for $22

     Cash (100 x $22)     $2,200

                  Treasury stock  (100 x $20)  $2,000

                   APIC- T/S   (100 x $2)           $ 200 (gain, not on I/S)
A

Reissue below Cost

100 shares repurchased for $20 were resold for $13

     Cash (100 x $13)               $1,300

      APIC-T/S  (100 x $2)\*       $200

      Retained Earnings (plug) $500

                      Treasury stock (100 x $20)  $2,000

*APIC-T/S calc= Resale price less repurchase price

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8
Q

Par Method- Original Issue

10,000 shares of $10 par value common stock sold for $15 per share.

Cash (10,000 x $15) $150,000

   Common stock  (10,000 x $10 par)  $100,000

      APIC- C/S           (10,000 x $5 (15-10) $50,000
A

Buy back above Issue price

200 shares repurchased for $20 per share

        Treasury stock (200 x $10 par) $4,000

         APIC - C/S   (200 x $5)             $1,000

         Retained earnings (plug)          $1,000

                                       Cash   (200 x $20)          $4,000
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9
Q

Buy back below Issue Price

200 shares repurchased for $12 per share

    Treasury stock (200 x $10 par)   $2,000

    APIC- C/S  (200 x $5/Original APIC/Sh)    $1,000

                                           Cash      (200 x $12)                  $2,400

                                             APIC-T/S  (gain,plug)                $ 600
A

Reissue Shares (no gain or loss)

100 shares repurchased for $20 were resold for $22

   Cash  (100 x $22)    $2,200

              Treasury stock      (100 x $10 par)    $1,000

              APIC- C/S                                           $1,200
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10
Q

Reissue Shares

100 shares repurchased for $20 were resold for $13

Cash   (100 x $13)        $1,300

            Treasury Stock (100 x $10 par)    $1,000

             APIC- C/S        (100 x $3)            $ 300
A
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11
Q

What accounts will be increased when the rights are issued?

Common Stock?

Retained earnings?

APIC

A

None.

No entry is made when the rights are issued and no consideration is given. If the rights are excercised and stock is issued, then common stock and APIC increase.

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12
Q

Retained earnings formula

A

Net income/loss

less: (Dividends declared-can be cash, property, stock)

+ Prior period adjustements (correction of errors)

+ Accounting changes reported retrospetively

_+ Adjustement from quasi reorganizatoin _

Change in retained earnings

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13
Q

If a dividend distribution is made, and nobody has excercised the redemption yet, and the company redeems them back, what is the treatment?

A

_Since nobody has excercised, it is simply the: _

Shares distributed

x

redemption rate

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14
Q

Stock for compensation

A

The FV of the services provided is the compensation expense which decreases NI, R/E, and total Equity.

APIC is the FV of the services less th_e par value of the common stock. _

If provided over multiple years, divide up the amount evenly by year.

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15
Q

Converitable preferred stock

What happens when all converted?

A

Issuance of Preferred Stock:

Cash (shares x conversion price)

  Preferred Stock (shares x par)

  APIC - PS            (shares x price-par)

Conversion to Common Stock:

Preferred Stock (reverse)

APIC - PS (reverse)

      Common stock (shares x conversion rate x C/S conversion price)

      APIC- CS (shares x C/S conversion rate)
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16
Q

What happens to any difference when treasury stock is sold back at an excess?

A

Any difference is credited to APIC-T/S, and if there is not enough Paid in Capital, then you would debit the rest of the loss to retained eanings.

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17
Q

Primary purpose of quasi-reorginzatation?

A

To eliminate a deficit in retained earnings

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18
Q

Always remember things like looking at dates or interest expense to stay consistent with matching principle

A

Look at an answer, and make sure you pick the one that is consisent with the months and matching principle, dont just pick something that has the total interest expense in it.

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19
Q

What is a liquidating dividend?

A

A dividend that is to the extent of that the dividend exceeds retained earnings

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20
Q

Jouranl entries of compenstatory stock option?

A

_ (when options granted)_

Compensation expense (FMV) xxx

   Paid-in capital-stock-options (FMV)   xxx

(when options exercised)

Cash (shares x option price) xxx

Paid-in capital-stock-options (reverse) xxx

                  Common stock at par  (shares x par)             xxx

                      Paid in capital in excess of par (squeeze)          xxx
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21
Q

Whenever a portion of any excercise exceeds its par value, what account is hit?

A

Additonal paid in capital is credited

22
Q

What effect does the excercise of stock rights have on net income?

A

None, it hits APIC if in excess

23
Q

How does the declaration of a stock dividend affect the total amount of shares outstanding?

A

It increases the total number of shares.

If 100,000 shares are issues, 40,000 outstanding, and a 10,000 share stock dividend is declared, then 10,000 is added to oustanding from issued to total 50,000 oustanding.

24
Q

A property dividend is recorded at what?

A

The market value at the date of declaration.

Not issuance

25
Q

Change in retained earnings example

A

Assets

+Liabilities

+Capital stock, Additional paid-in capital, Retained earnings (squeeze)

Retained earnings changes

Begin R/E (if negative previous year, 0)

Add net income (squeeze)

Less dividends paid

Ending R/E (B/S)

26
Q

Prorating dividends paid between preferred and common stock

A
  1. Dividends in arrears on preferred stock
  2. Percent of cumulative perferred stock
  3. Then plug the rest to common stock to balance the cash dividend
27
Q

Appropration of retained earnings.

A

For the year, does not accumulate.

It is only for the amount appropriated that year.

DOES NOT INCLUDE APPROPRATIONS FOR CASH RESTRICTED

28
Q

Common Stock, preferred stock Journal entries

A

_Common Stock _

Cash (Shares x issue price) xxx

   Common stock (shares x par)   xxx

    APIC- C/S (shares x S/P-par)     xxx

Preferred Stock

Cash (Shares x issue price) xxx

  Preferred stock (shares x par)   xxx

    APIC- P/S (shares x S/P-par)     xxx
29
Q

How should the value of warrants be determined?

A

By the FMV of the warrants

30
Q

Stock options oustanding effects

A

Reduced at excerise date and increased at grant date.

31
Q

Stock dividends do not effect total Stockholders equity.

A

Retained earnings xxx

    Common stock       xxx

It offsets to zero.

32
Q

Net income or retained earnings will never be increased through treasury stock transactions.

A
33
Q

There is no such thing as a “gain” in relation to net income from treasury sock transactions.

A

This instead is reflected as an adjustment to S/E, with a “gain’’ being credited to APIC-T/S.

34
Q

Book value per common share

A

Common shareholders equity

Common shares outstanding

Common shareholders equity=

Total shareholders equity

less: (preferred stock oustanding) greater of call price or par

less: (cumaliative preferred dividends in arrears)

Common stockholders equity

35
Q

In retained earnings questions, remember tax expense when caluclating net income.

A

Little things like that so they can intentionally fuck with you and not see what you really know.

36
Q

Public entities are required to measure the cost of employee services in exchange for an award of equity interests at what date?

A

The date of grant

37
Q

Common and preferred dividend propartion problem where the amounts of shares are given

A

Remember goal is to get to total dividends

_ Preferred _ Common

**Total capt= **Shares x par xxx xxx

x prefered dividend rate x% x%

Dividends xxx xxx

Percent of cap (Cap/Total Cap) .33 (ex) .66 (ex)

Undistributed xxx xxx

                                        Total                      Total
38
Q

Remember, that when stocks repurchased are reissued below cost for BOTH cost and par method, retainted earnings are reduced.

A
39
Q

Remember that with compsentatory stock options, it must be recongized regardless of its recongized.

A

Also, remember that if its granted in Year 1 and excercised in year 2, and it totals $100,000, then year 2 compensation expense would be $50,000 (divided equally).

40
Q

Par method, shares reacquired above par using the PAR method

A

Under the par value method, when shares are reacquired, the treasury stock is recorded par value, APIC is reduced by the amount recorded when the shares were originally issued.

Treasury stock (par x shares) xxx

APIC (Original APIC when issued xxx)

Retained earnings (plug)

              Cash                                        xxxx

So think, if $5 par, buy back at $10, issued at $7/share, APIC is 7-5

41
Q

How do you treat the issuance of shares during the course of the year?

A

They go into the calcuation of oustanding shares.

42
Q

Stock Dividend J/E,

small (20 percent or smaller)

vs.

large (25 percent or greater)

Remember it is the amount of shares x percentage= dollar value

A

Date of declaration (small)

Retained earnings xxx

        Common stock to be distrbuted  xxx

        APIC from stock dividend            xxx

Date of declaration (large)

Retained earnings xxx

   Common stock to be distrbuited
43
Q

Common stock that contains an unconditioanl redemption feature is reported as a what?

A

Liabliity

Common stock taht contains an unconditional redemption feature should be reported on the issuer’s books as a liablity on the date of issuance because there is an obligation of cash outflow in the future that the company has no ability to prevent

44
Q

If compenstation award is over 5 years, FUCKING do it over 5 years!!!!!

A
45
Q

Instrictic value formula

A

Number of share options

x

(Market price of the stock on the date of the grant - excercise price of the share option)

46
Q

When stocks are sold above its issue price (exceeds its costs), you can probably bet its going to be a credit to APIC.

A
47
Q

Property dividends.

Recorded at?

Effect on retained earnigns?

A

Peroperty dividends are recorded at FV

and

Retained earnings are decreased when they are decleared

48
Q

Stock dividends.

Effect on retained earnings?

Effect on Total stockholders equity?

A

Decrease to retained earnings

No effect on stockholders equity.

49
Q

Shares of its own stock held by a corporation should be treated how?

A

As treasury stock and shown as a REDUCTION in the stockholders equity section.

50
Q

Small stock dividend (less than 20%)

Large stock dividend (larger than 20%)

What value is each recorded

A

Small stock dividend- Fair value

Large stock Dividend- Par value

51
Q

A pure liquadating dividend effects which accounts?

A

APIC

Retained earnings would not be effected

FAR- F7 (3 decks)

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