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Financial Accounting and Reporting > Equity > Flashcards

Equity Flashcards

1
Q

RE is decreased for both Cash and property dividends

A

True

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2
Q

Excercise of stock rights increases APIC and no effect on NI

A

True

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3
Q

Dividends exceed RE

A

Liquidating dividends (it will decrease both APIC and RE)

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4
Q

If using Par Value, there is no need to use APIC

A

Under Stock method (Large stock Greater than 20-25%)

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5
Q

Entry to record dividend on declaration date:

A

RE (FV) 800

   Dividends Payable (FV)          800
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6
Q

How would you record liquidating dividends on the date of declaration?

A

RE XXX
APIC XXX
Dividends Payable XXX

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7
Q

Quasi-reorganization (fresh start)

A

The BS carrying amounts are stated at FV. The deficit in RE is eliminated. Paid-in capital (par value and/or APIC) is adjusted, but not below zero.

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8
Q

Company with a deficit in RE can eliminate deficit by reorganizing as a ___________________

A

NEW COMPANY

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8
Q

Treasury Stock, PAR VALUE Method reduces the amount shown as common stock. It is not reported directly on the FS

A

True

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9
Q

Reissuance of Treasury Stock is treated as a regular issuance of common stock except that Treasury stock is credited rather than common stock

A

True

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9
Q

Treasury stock does not affect income statement accounts. It only affects _________

A

Equity accounts

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9
Q

JE when shares are retired (PAR Method)

A

Common Stock XXX
Treasury Stock XXX

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10
Q

For which purposes, retained earnings should be appropriated?

A
  1. Debt reduction
  2. Building construction
  3. Future Stock Buybacks
  4. Plant expansion
  5. Reserve against possible (not probable and estimable) lawsuits
  6. Research and development
  7. Company acquisitions
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11
Q

Previously unissued common stock

A

Re-issued shares

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12
Q

Restricting RE is done through an appropriation (i.e. a reserve).

A

True

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13
Q

Property Dividends increases/reduces ______________

A

NET INCOME (as the case may be)

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14
Q

Stock dividends will cause increase in _______________ and decrease in ____________

A

Increase in APIC
Decrease in RE

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15
Q

Scrip dividends (when company doesn’t have enough cash to distribute dividends) : A dividend issued in the form of a NOTE PAYABLE.

A

RE XXX
Note Payable XXX

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16
Q

True or False: Acquired some of its common stock - means treasury stock (which will reduce Equity and will increase book value per share)

A

True

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17
Q

Unappropriated RE

A

Dividends

18
Q

True or False: Disclosure of EPS is required for both Basic EPS and Diluted EPS

A

True

19
Q

All publicly held companies are required to report EPS for the following 3 income statement items:

A
  1. Income from continuing operations (in the income statement)
  2. Income from discontinued operations (either income statement or notes to financial statements)
  3. Net Income (in the income statement)
20
Q

When the company’s intent is to hold the shares indefinitely, which method is used?

A

PAR VALUE

21
Q

If the repurchase price is greater than than par value, debit to APIC-T/S and/or retained earnings is required.

A
22
Q

Accrual based NI, opposite of cash flow from operating activity

A

Increase in prepaid rent +
Decrease in AR (-)
Decrease in AP +
Increase in Unearned Revenue (-)
Increase in Wages payable (-)

23
Q

Property dividends are valued at FMV of the property at the date of declaration

A

True

24
Q

When a company makes a liquidating dividend, it debits __________

A

APIC (Common stock cannot be debited because it is considered legal capital rather than retained earnings). Common stock cannot be debited because it is considered legal capital which is only eliminated upon the dissolution of the corporation. Liquidating dividend is a dividend paid which is considered a return of the shareholders’ investment.

25
Q

REPURCHASING common stock affects the number of shares __________. It does not affect shares issued or shares authorized. Shares outstanding equals shares issued less treasury shares.

A

OUTSTANDING

25
Q

Large stock dividends are recorded at par. A stock dividend of 40% of the shares outstanding is considered a large stock dividend.

A

True

26
Q

___________ preferred stock refers to the sharing with common shareholders in dividend distribution beyond a specified level while a convertible preferred stock allows the option of exchanging for common stock.

A

PARTICIPATING- Participating preferred stock refers to the sharing with common shareholders in dividend distribution beyond a specified level.

27
Q

Preferred stockholders have the right to be paid any dividends in arrears before the common stockholders are paid a dividend so preferred stock is ________

A

CUMULATIVE

28
Q

A form of compensation which allows employees to receive stock or cash for the difference between the stated value and the market value is known as ____________

A

STOCK APPRECIATION RIGHTS

29
Q

Anything above par value is _____ no matter if the value is provided in lumpsum or par value per share or above per share for calculation purpose.

A

APIC

30
Q

Loss on sale of T stock to be deducted from ________________

A

Retained Earnings

31
Q

Retained Earnings Formula

A

NI less Dividends = RE

32
Q

Sale of Tstock ______________

A

Enter as positive value

33
Q

Repurchase Tstock or Purchase Tstock : enter as ___________

A

NEGATIVE value and to be reduced from number of common stock (purchasing its own shares will reduce the total no. of shares held)

34
Q

Declared and paid Dividends to be reduced from ______________

A

Retained Earnings balance

35
Q

STOCKHOLDER’S EQUITY

A

Contributed (paid-in)Capital
+ Preferred Stock
+ Common Stock
_______________________________
APIC (from various sources)
=Total Paid-in Capital

NCI (if Consolidated financial Statements)

Retained Earnings
(appropriated and unappropriated)
AOCI
(-) Treasury Stock (Cost method)
__________________________________
Total stockholders’ equity

36
Q

If exercise price > Par value, always creates APIC (RE are not affected)

A

True

Cash (exercise price * No. of shares) XXXX
Common stock (par) XXXX
APIC (exercise price - par) XXXX

37
Q

Treasury stock is a company stock that is repurchased but not retired. Because a company is not allowed to report owning its common stock as an investment, T/S is recorded as a contra account (debit balance) to stockholders’ equity.

A
38
Q

Treasury Stock COST METHOD - no effect on APIC or RE. JE for cost method

A

Treasury stock (cost method) XXX

          Cash                                                  XXX
39
Q

PAR VALUE : Repurchase price > par and original issue price

A

Treasury stock (par) XXX
APIC - C/S (original amount) XXX
APIC - T/S XXX
Retained Earnings XXX
Cash XXX

40
Q

PAR VALUE: Repurchase price>par, but < original issue price

A

Treasury stock (par) XXX
APIC-C/S (original amount) XXX
Cash XXX
APIC-T/S XXX

41
Q

QUASI-REORGANIZATION - it’s purpose is to give a corporation the opportunity to ____________________

A

eliminate a deficit in RE, giving the company a fresh start.

STEPS:
1. Revalue assets and liabilities to FV, if required
2. Eliminate deficit in RE
3. Net adjustments against paid-in capital, but not below zero.

A corporation with a large deficit balance (i.e. debit) in Retained Earnings may face legal proceedings (e.g. bankruptcy) or may be forced to legally reorganize as a new entity. Although rare, GAAP does permit such a corporation to eliminate the deficit balance and restate its balance sheet to FV in a quasi-reorganization as means for a fresh start.

A quasi-reorganization should not result in a write-up of net assets (e.g. equity) and RE must be zeroed out. Once the quasi-reorganization receives shareholder approval, readjusments are made.

Because no equity account may have a debit balance after a quasi-reorganization, a corp can choose to reduce the par value of the stock first and then adjust APIC accordingly.

42
Q

A withdrawal by a partner represents a return of investment and does not impact the allocation of Net income/loss. Instead it reduced the ____________

A

partner’s capital

43
Q

Stock split does not affect APIC.

A

Total par value outstanding does not change.

44
Q

STOCK WARRANTS are issued to existing shareholders so that they can purchase additional shares of stock in order to maintain their ownership percentage.

A

True

45
Q

Dividends payable date

A

CL and CA will decrease. No impact on retained earnings on payment date.

Financial Accounting and Reporting (28 decks)

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