STOCKHOLDERS' EQUITY: PART 2

Question 1

J.E to record Subscriptions receivable

Answer 1

dr subscriptions receivable
cr Common Stock subscribed
cr APIC

Question 2

Issuance of Stock Previously Subscribed

Answer 2

Dr Common Stock Subscribed
Cr Common Stock (issued)

Question 3

stock rights

Answer 3

It provides an existing shareholder with opportunity to buy additional shares

usually carries a price below the stocks MP on the date the rights are granted

memorandum entry only

dr cash
cr common stock
cr APIC

Question 4

Other Stock Valuation Issues

Answer 4

Stock Issued for outside services should be recorded at the FMV of the stock

Stock issued in a basket sale with other securities should be allocated a portion of the Sales proceeds based on the relative FMV of diff securities

Question 5

Date of Declaration

Answer 5

the date the BOD - approves a dividend (liability is created)

Question 6

Date of Record

Answer 6

the date of BOD specifies as the date the names of the SH to receive the dividend are deternmined

Question 7

Date of Payment

Answer 7

the date on which the dividend is actually disbursed by the corporation or its paying agent

Question 8

Property in kind dividends

Answer 8

Distribute non cash asset

non reciprocal transfers of non monetary assets from the co to its shareholders.

on date of declaration - it should be restated to FV and G/L should be rec.g in income.

Dividend Liability and related Db to RE should be recorded at FV of assets transferred

Question 9

Scrip Dividends

Answer 9

• It is a special form of notes payable whereby a corporation commits to paying a dividend at some later date
• when there is cash shortage

-On date of declaration - RE db NP Cr

Question 10

Liquidating Dividends

Answer 10

It occurs when dividends to SH exceed RE

reduce total PIC

Dividends in excess of RE would be charged (db) first to APIC and then to common / preferred stock

Question 11

Stock Dividends

Answer 11

Distribute additional shares of a co’s own stock to its SH.

Question 12

Treatment of Small Stock Dividend

Answer 12

• < 20-25 percent
• Issuance is not expected to affect the MP of the stock
• The FMV of the stock dividend at the date of declaration is transferred from RE to capital stock and APIC

no effect on total SH equity as PIC is substituted for RE

Question 13

Treatment of Large Stock Dividend

Answer 13

->20-25 Percent
-it is expected to reduce the MP of the stock

• par value of stock dividend is tf from RE to capital stock
• amt tf is no. of shares issued multiplied by par value of stock

Question 14

Stock Dividends on TS

Answer 14

exception :
1. Co is maintaining a ratio of TS to shares OS in order to meet stock option or other contractual commitments or
2. State law requires that TS be protected from dilution

Question 15

Stock Splits

Answer 15

• Occurs when a corporation issues additional shares of its own stock to current SH and reduces par value per share proportionately

Question 16

Reserve Stock Splits

Answer 16

it would involve reducing the number of shares OS and increasing the par value proportionately.

Question 17

Liquidating Dividend

Answer 17

Dividend exceeded RE

Question 18

A stock dividend - less than 20 - 25 per cent of stock OS

Answer 18

tf the FMV of Stock dividend at declaration date from RE to Capital Stock and PIC

No effect on total SH equity because all tf take place within sSH equity

Question 19

G&L on TS

Answer 19

not recorded on income statement

recorded by increasing APIC-TS