Stockholders' Equity Flashcards
When are dividends in arrears for cumulative preferred stock accrued?
They are accrued when they are declared.
If a year passes and no cumulative preferred stock dividends are declared, what happens with the dividends in arrears?
The dividends in arrears are included as a disclosure - not an accrual in the financial statements.
What amount is retained earnings debited if a stock dividend is declared that is less than 25% of common stock outstanding?
Debit retained earnings for the fair market value of stock.
What amount is retained earnings debited if a stock dividend is declared that is greater than 25% of common stock outstanding?
Debit retained earnings for the par value of stock.
What effect do stock dividends and stock splits have on total shareholders equity?
Stock dividends and stock splits both have no effect on total shareholders equity.
Do stock splits affect par value?
Yes, stock splits will decrease par value with the corresponding amount of split. I.e. a 5 for 1 split will reduce the par value by 1/5th.
When is compensation expense recorded for stock options?
Compensation expense is recorded at the time of grant if options are exercisable immediately.
What is the formula to calculate Basic EPS?
Basic EPS = (Net Income - Preferred Dividends) / Avg Common Stock outstanding
How are cumulative preferred stock dividends treated for the basic EPS calculation?
If cumulative, subtract the preferred stock dividend regardless of whether or not they’re declared.
When are prior year preferred stock cumulative dividends subtracted?
The prior year preferred stock cumulative dividends reduces that year’s EPS. Only deduct the current year.
For EPS purposes, how are stock splits and stock dividends treated?
Treat common stock splits or stock dividends as if they occurred at the beginning of the year, regardless of when actually issued during the year.
For Diluted EPS, when do stock options increase outstanding shares?
Stock options increase shares outstanding only if they are dilutive and their exercise price is less than market value.
