F7 Flashcards
Where to record treasury stock?
Owned by the “company” not shareholders. Dr treasury stock (contra equity), reduce shareholder’s equity.
What’s capital stock?
“Legal capital”–must be retained for shareholder protection. The PAR or stated value of preferred and common stock.
What’s participating preferred stock?
In addition to the preference dividend paid to preferred stock holders, also share the remaining dividends equally with common stock holders (may to a limited extent, if partially participating), equally and then pro rata.
How are the G/L recorded resulted from treasury stock transactions? Cost method vs par method?
Direct adjustment to S’s equity(APIC-T/S) not through net income. BUT loss may decrease retained earnings if APIC is not large enough to absorb the loss(at reaquiring or reissuing).
Under par method when reaquiring, in addition to Dr T/S at par, the excess “cost” is Dr’d from original APIC cr’d and any remaining decrease retained earnings. R/E is never increased due to T/S transactions. Do NOT Dr common stock unless when retiring.
How to record issue of stock rights?
Memo entry. Only record J/E when exercised.
How to record property dividend?
At declaration, property should be restated to FV, G/L rec’d in income. Dr R/E, Cr Dividends payable.
What’s scrip dividend?
When there’s cash shortage, company commits to pay dividend later(treat as notes payable). Dr R/E, Cr notes payable.
What’s the difference between large and small stock dividends? Treatment?
less than 20%–small- reduce R/E by FMV(par+APIC) of stock.
More than 25%–large- reduce R/E by par of stock.
Either way, no change in total equity, no dividend income to shareholder, reduce basis.
What’s the difference between stock dividend and stock split? What’s in common?
Stock dividend is “dividend”–reduce R/E, increase common stock (and APIC when small), N/C in total Equity.
Stock split does not affect retained earnings and no J/E.
But both are not income to shareholders, merely reduce original basis in the same manner.
Are stock options (expense) rec’d in books when issued, before actual purchase? What if end up expired?
Noncompensatory(GAAP only)–NO. Regular J/E when purchased.
Compensatory(GAAP and IFRS)– NO. FV of the option is expensed over vesting period (matching, like pension service cost), Dr exp, Cr APIC-stock option (reversed at purchase). If expired, Dr APIC - s/o, Cr APIC- expired s/o. Expense N/C.
When calculating basic EPS, what’s the number of shares used, beginning, ending?
Common Stock only! Weighted Average of Common Shares Outstanding. WACSO. Stock dividend and splits are treated as if done at the beginning of the ealist period presented.
When calculating diluted EPS, what’s the number of shares(denominator) increased due to potential conversion /purchase of common stock?
Option/warrents– “treasury stock method” increase is the “assumed” additional outstanding shares. the number of shares assumed issued to satisfy the options or warrants minus the number of shares assumed to be purchased(@ FV) with the proceeds.
Convertibles– “if converted method’. All are presumed to be converted at the beginning of year or issue date for calculation of WACSO.
Are EPS-antidilutive securities reported in financial statements?
Not in calculating diluted EPS, but disclosure required.
Should cash flow per share be presented?
GAAP-NO.
IFRS-not prohibited.
Which section to put Interest and dividend receivd, interest paid on statement of cash flow?
GAAP- operating (CFO). principle paid is CFF.
IFRS- if bank etc, CFO; mostly would be investing or financing.
