Stockholders equity Flashcards
At what point is retained earnings decreased on a cash dividend of common stock?
When the divident is DECLARED, not paid
When is retained earnings affected from the proceeds of treasury stcok sold?
When the shares are sold below cost.
and
The difference exceeds any additional paid-in-capital from treasury stock.
What does the sale of previously unissued stock mean?
The company issued more stock, more shares are now outstanding.
They did not SELL any stock, since it was previously unissued.
If you sell treasury stock, what does it do to your outstanding shares?
It adds to them.
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?
Retained earnings are not affected.
It is only affected if its LESS than its acquisition price.
**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
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
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)
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
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
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
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
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
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
What accounts will be increased when the rights are issued?
Common Stock?
Retained earnings?
APIC
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.
Retained earnings formula
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
If a dividend distribution is made, and nobody has excercised the redemption yet, and the company redeems them back, what is the treatment?
_Since nobody has excercised, it is simply the: _
Shares distributed
x
redemption rate
Stock for compensation
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.
Converitable preferred stock
What happens when all converted?
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)
What happens to any difference when treasury stock is sold back at an excess?
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.
Primary purpose of quasi-reorginzatation?
To eliminate a deficit in retained earnings
Always remember things like looking at dates or interest expense to stay consistent with matching principle
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.
What is a liquidating dividend?
A dividend that is to the extent of that the dividend exceeds retained earnings
Jouranl entries of compenstatory stock option?
_ (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
Whenever a portion of any excercise exceeds its par value, what account is hit?
Additonal paid in capital is credited
What effect does the excercise of stock rights have on net income?
None, it hits APIC if in excess
How does the declaration of a stock dividend affect the total amount of shares outstanding?
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.
A property dividend is recorded at what?
The market value at the date of declaration.
Not issuance
Change in retained earnings example
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)
Prorating dividends paid between preferred and common stock
- Dividends in arrears on preferred stock
- Percent of cumulative perferred stock
- Then plug the rest to common stock to balance the cash dividend
Appropration of retained earnings.
For the year, does not accumulate.
It is only for the amount appropriated that year.
DOES NOT INCLUDE APPROPRATIONS FOR CASH RESTRICTED
Common Stock, preferred stock Journal entries
_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
How should the value of warrants be determined?
By the FMV of the warrants
Stock options oustanding effects
Reduced at excerise date and increased at grant date.
Stock dividends do not effect total Stockholders equity.
Retained earnings xxx
Common stock xxx
It offsets to zero.
Net income or retained earnings will never be increased through treasury stock transactions.
There is no such thing as a “gain” in relation to net income from treasury sock transactions.
This instead is reflected as an adjustment to S/E, with a “gain’’ being credited to APIC-T/S.
Book value per common share
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
In retained earnings questions, remember tax expense when caluclating net income.
Little things like that so they can intentionally fuck with you and not see what you really know.
Public entities are required to measure the cost of employee services in exchange for an award of equity interests at what date?
The date of grant
Common and preferred dividend propartion problem where the amounts of shares are given
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
Remember, that when stocks repurchased are reissued below cost for BOTH cost and par method, retainted earnings are reduced.
Remember that with compsentatory stock options, it must be recongized regardless of its recongized.
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).
Par method, shares reacquired above par using the PAR method
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
How do you treat the issuance of shares during the course of the year?
They go into the calcuation of oustanding shares.
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
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
Common stock that contains an unconditioanl redemption feature is reported as a what?
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
If compenstation award is over 5 years, FUCKING do it over 5 years!!!!!
Instrictic value formula
Number of share options
x
(Market price of the stock on the date of the grant - excercise price of the share option)
When stocks are sold above its issue price (exceeds its costs), you can probably bet its going to be a credit to APIC.
Property dividends.
Recorded at?
Effect on retained earnigns?
Peroperty dividends are recorded at FV
and
Retained earnings are decreased when they are decleared
Stock dividends.
Effect on retained earnings?
Effect on Total stockholders equity?
Decrease to retained earnings
No effect on stockholders equity.
Shares of its own stock held by a corporation should be treated how?
As treasury stock and shown as a REDUCTION in the stockholders equity section.
Small stock dividend (less than 20%)
Large stock dividend (larger than 20%)
What value is each recorded
Small stock dividend- Fair value
Large stock Dividend- Par value
A pure liquadating dividend effects which accounts?
APIC
Retained earnings would not be effected
