1.40 Statement of Change in Equity Flashcards
(25 cards)
What does the Statement of Changes in Equity and Equity Transactions demonstrate or is used for?
Who uses it?
1.4 Statement of Changes in Equity and Equity Transactions
reconciliation for the accounting period of the beginning balance for each component of equity to the ending balance.
On the financial statements, where will you find Net Income, Net Loss, and Distributions to Owners?,
Statement of Changes in Equity
How do you record the issuance of Treasury Stock above part on a Cost Method and Par Value Method?
The cost method uses the value paid by the company during the repurchase of the shares and ignores their par value; under this method, the cost of the treasury stock is included within the stockholders’ equity portion of the balance sheet.
The Par Value accounting method, you would debit cash for the purchase price of the Treasury Stock and credit capital in excess (PIC) of par for any excess paid above par.
1.4
Treasury stock is a contra account to which line item and on what statement?
Changes to stockholder’s equity are recorded as a contra account to common stock.
What does OCI mean?
Other Comprehensive Income
When a company repurchases treasury stock does that increase or decrease stockholder’s equity?
Reduces total stockholders’ equity
A statement of retained earnings reconciles the beginning and ending balances of the account. This statement is reported as part of the statement of changes in equity in a separate column.
What 3 line items will you find on this statement?
Retained earnings beginning balance
+ Net income (loss) for the period
– Dividends distributed during the period
+ Positive (negative) prior-period adjustments
Retained earnings ending balance
1.4
What would prior period adjustments (2) include as changes to the Statement of Stockholder’s Equity?
- Changes in accounting principle (e.g., change in inventory valuation method)
- Corrections of prior-period financial statement errors
Changes in accounting principles (e.g., change in inventory valuation method)
Are these recorded as Retrospective or Prospective adjustments and name 3 line items.
1.Changes in Accounting Principle (LIFO/FIFO) (retrospective)
2. Corrections to prior-period financial statement errors, (retrospective)
3. Changes in Accounting Estimates (remaining life of a depreciable asset.) (prospective application)
What is retrospective and prospective in accounting?
In other words, retrospective will effect presentation of financial statements for previous periods.
While prospective means implementation new accounting policies for transaction, event, or other circumstances after new accounting policies or estimation has been
What are liquidating distributions and what rights do Common shareholders have?
- Common shareholders are entitled to receive liquidating distributions only after all other claims have been satisfied, including those of preferred shareholders.
What are preemptive rights as it relates to common shareholders?
- Preemptive rights give current common shareholders the right to purchase any additional stock issuances in proportion to their ownership percentages.
This way the preemptive rights safeguard a common shareholder’s proportionate interest in the firm.
Do preferred stockholders have voting rights?
Generally, no
Are preferred stockholders paid before common stockholders and how much?
Yes, fixed charge. Can vary but if it’s % or $ they receive not more than that.
Accumulates unpaid dividends (dividends in arrears)
What are dividends in arrears?
The annual amount preferred stockholders are owed even if not yet paid. They will be paid before
Name some characteristics of preferred stock
*fixed charge dividends are cumulative
*No voting rights (typically)
*Right to receive
—before common shareholders
—after creditors (liquidation)
*Cumulative unpaid dividends
*right to convert to another class. Typically common stock
What is a cumulative preferred stock?
Cumulative preferred stock accumulates unpaid dividends (called dividends in arrears). Dividends in arrears must be paid before any common dividends can be paid.
What are dividends in arrears?
Cumulative preferred stock accumulates unpaid dividends (called dividends in arrears). Dividends in arrears must be paid before any common dividends can be paid.
How do you record the company issuing authorized stock (not treasury stock)
A=OE + OE
Assets = Liabilities + Stockholders’ Equity
Cash $850,000 = ↑Common stock $50,000 ↑
+ Additional paid-in capital $800,000 ↑
What are the transactions are recorded for the sale of Treasury Stock on the cost method?
- Under the cost method, treasury stock is recorded at the cost of the purchase.
- Treasury stock is treated as a reduction to total stockholders’ equity.
What are the transactions are recorded for the sale of Treasury Stock on the par method
Under the par value method, treasury stock is recorded for the par value of the stock.
1. Treasury stock reduces total stockholders’ equity.
2. Additional paid-in capital is reduced.
3. Retained earnings is decreased if the acquisition price is greater than the original issue price.
In the three steps of declaring dividends, Declaration date, Record date, payment of dividends, which are recorded on the book and how?
Declaration
Dividends payable $120,000 ↑
Retained earnings $120,000 ↓
Record date
Nothing
Payment
Cash $120,000 ↓
Dividends payable $120,000 ↓
When a property dividend is declared, what adjustments to the book value are made?
-Assess the fair market value
-Record a gain or loss on the statement of income
retained earnings is decreased for the Fair value
-Property distributed as dividend (sold and paid out)
On a declaration of stock dividend coming from the issued bucket, what equity accounts are impacted and how?
Common stock $4,500 ↑
APIC $63,000 ↑
Retained earnings $67,500 ↓
