Stockholders' Equity

Question 1

book value per share

Answer 1

dividing total stockholder’s equity by the total number of shares outstanding

Question 2

date of grant

Answer 2

Public entities are required to measure and record the cost of employee services in exchange for an award of equity interests at the date of grant.

Question 3

when dividend declared is more than retained earnings

Answer 3

whatever is over, is considered return of capital aka liquidating dividend.

When a company declares a dividend in excess of its retained earnings, it is considered a liquidating dividend. Retained earnings is eliminated and the remainder is treated as a reduction of contributed capital, reducing additional paid in capital first.`

Question 4

intrinsic value of the call option

Answer 4

The intrinsic value of the call option is the difference between the exercise price and the market price

use the value on the date of GRANT

Question 5

compensation expense is recognized in

Answer 5

the period or periods in which the services are rendered.

compensation expense is recognized ratably during the vesting period, which is the period of time from the grant date to the earliest possible exercise date.

(take total compensation divide by how many years til it expires)

Question 6

quasi-reorganization

Answer 6

gives a corporation an opportunity to eliminate the overstatement of assets and to eliminate any deficit in retained earnings giving the company a “fresh start.”

Eliminate a deficit in retained earnings.

Question 7

A ‘small’ stock dividend (less than 20-25%) is credited to retained earnings

Answer 7

at its market value,

Question 8

‘large’ stock dividend (greater than 20-25%) is credited to retained earnings

Answer 8

par value

Question 9

gain or loss on sale of treasury stock

Answer 9

no gain or loss is recognized on the purchase, reissue or retirement of treasury stock.

Question 10

Dividends in arrears on preferred stock

Answer 10

are disclosed but not accrued

Question 11

Under IFRS, treasury stock may be accounted for under the

Answer 11

cost method,
par value method, or
constructive retirement method.

Question 12

acquisition of treasury stock

Answer 12

The acquisition of treasury stock always decreases total stockholders’ equity since it is recorded with a decrease to cash and a debit to treasury stock, which is a contra-equity account.

Question 13

Common and preferred stock are always reported at

Answer 13

their par or stated value

Question 14

declared and distributed a property dividend

Answer 14

A property dividend is recognized, for all practical purposes, in a two-step process. First, the property is adjusted to fair value as if it were sold for that amount, resulting in the recognition of a gain or loss. A dividend is then recognized with a reduction to retained earnings in an amount equal to the fair value of the property. If the merchandise had a carrying value that exceeded its market value, a loss would be recognized for the difference. The loss will be recognized as a component of income from continuing operations.

Question 15

liab recorded when prop div is

Answer 15

The liability for a property dividend is recorded at the declaration date

Question 16

j/e for acquisition of treasury stock using PAR method

Answer 16

1. debit treasury stock @ par
2. debit APIC cm for remainder of selling price
3. credit cash
4. PLUG- APIC CM

Question 17

stock dividend journal entry

Answer 17

D: Retained earning (# shares * FV on declaration date)
C: Common stock * Par $$
C: APIC (PLUG)

Question 18

stockholder only affected on

Answer 18

declaration date

Question 19

declaration date of stock/cash div

Answer 19

decrease to retained earnings

increase to liabilities

Question 20

payment date of declared div

Answer 20

decrease to cash, decrease to liabilties

Question 21

what is appropriation of retained earnings

Answer 21

An appropriation of retained earnings is a means of communicating to financial statement users that, despite the existence of retained earnings and, perhaps, the availability of cash, the company is anticipating a need that will prevent the distribution of dividends.

Question 22

when granting stock options, what value should the company use for compensation expense?

Answer 22

fair value at option grant date, expense uniformly over vesting period.

EX: grant 100 option. FV of option price on grant date is $15. vest over 3 years. what is compensation expense on year2?

100$15(2/3 years) = 1000

Question 23

three methods of accounting for treasury stock that are available under IFRS

Answer 23

1. cost method
2. par value method
3. constructive retirement method

Question 24

constructive retirement method

Answer 24

constructive retirement method is similar to the par value method except common stock is debited for the par value of treasury shares acquired, rather than treasury stock. This method is generally used when the company does not intend to reissue the shares.

Question 25

When a company undergoes a quasi-reorganization

Answer 25

any deficit in retained earnings is eliminated and assets that are overstated are written down to their FAIR VALUE

Question 26

small stock dividend (20-25%) is credited to RE at which value?

Answer 26

fair market value

Question 27

larger stock dividend (25$+) is credited to RE at which value

Answer 27

par value