Stockholders Equity & Investment in Stock Flashcards
Name five characteristics of Preferred Stock.
1) Fixed dividend rate.2) Preference in liquidation of assets.3) Participating or non-participating. Participation must be stated in problem.4) Cumulative or non-cumulative.5) Absence of voting rights.
Retained earnings should never/always be increased as a result of treasury stock transactions.
Retained earnings should never be increased as a result of treasury stock transactions.
If the donated stock is not to be resold, how should the company treat it?
The company should effect a formal reduction of its stated capital.
Name a general purpose of donated stock.
May be purchased to buy out a stockholder, or to create a market demand for the stock and thus retard a downward trend in the market value.
How is the par-value method used in recording treasury stock?
The par-value method results in the shares being recorded at par with the treasury shares shown in the balance sheet as a reduction of capital stock outstanding.
How is the cost method used in recording treasury stock?
Where the “cost” method is used, acquisitions are recorded at cost and the total cost is shown in the balance sheet as a reduction of stockholders’ equity.
Name the two accounting methods used in recording with treasury stock.
1) Cost (preferable)2) Par-value or retirement method
The terms “Gains” and “Losses” regarding treasury stock
The terms “gains” and “losses” are used in connection with describing the transaction; however, treasury stock transaction do not result in net income for financial reporting purposes. Also, treasury stock transactions are not taxable.
How should be “Losses” on capital stock acquired (for reasons other than retirement) be treated?
“Losses” should be charged to capital in excess to the extent that previous net “gains” from sales or retirements of the same class of stock are included therein, otherwise to retained earnings.
How should be “Gains” on capital stock acquired (for reasons other than retirement) be treated?
“Gains” on sales of treasury stock not previously accounted for as constructively retired should be credited to capital in excess.
The total cost of treasury stock carried should be shown as a _______ of retained earnings in the balance sheet.
restriction
Subscription of capital stock occurs when?
A subscription of a capital stock occurs when an investor contracts to purchase stock, making payment(s) in future. Usually, a partial payment is made at the time of the contract and the stock is not issued until final payment has been made.
When treasury stock is purchased, how should the cost be handled?
The cost of treasury stock, regardless of par, should be carried as the value of treasury stock as a reduction of stockholders’ equity.
Treasury Stock
Treasury stock is a corporation’s own stock, once issued and fully paid, and later reacquired but not canceled in accordance with a formal procedure specified by law.
In published statements this element of stockholders’ equity is normally shown under one title; however, separate accounts must be maintained in the accounting records by source.
Capital Contribution in Excess of Par Value of Stock
Retained Earnings Balance
Retained earnings balance is cumulative net income of a corporation from date of incorporation or reorganization, after deducting losses, distributions to stockholders, transfers to capital accounts, and after accounting for prior period adjustments.
If a subscriber defaults on a subscription contract the default could result in these four occurrence:
1) Forfeiture of all amounts paid.2) Refund of amount paid.3) Partial refund.4) Issuance of shares in proportion to amount paid for.
