Equity

Question 1

Calculating goodwill when admitting a new partner

Answer 1

Question 2

JEs for Treasury Stock Par value Method, repurchase (less & greater than OC) and reissue

Answer 2

If repurchased less than OC, Credit APIC TS.
If repurchased greater than OC, debit APIC TS. Use PAR calc only for debit to Treasury shares and the removal of APIC CS.

APIC T/S is always NP - OC.
Cash is always NP.
Reissuance is like typical CS issuance but with TS

Question 3

Steps to Admission of a new partner using bonus method

Answer 3

Question 4

Repurchase/Reissue Treasury Stock Cost method

Answer 4

Question 5

Reissuing Treasury Stock using cost method at a price Less than orignal cost results in a __________

Answer 5

Reissuing at a loss (below original cost) results in an equity reduction, which is not ideal because it debits APIC or Retained Earnings

Question 6

Reissuing Treasury Stock using cost method greater than OC results in _____. Whats the JE?

Answer 6

Results in a credit/gain to Additional Paid-in Capital (APIC) for the difference between the reissue price and the original cost.

The company gains additional capital from reissuing treasury stock at a higher price.

No impact on Retained Earnings

Question 7

What are the steps to Conversion of Preferred Stock to Common Stock

Answer 7

Question 8

Book value per share of common stock

Answer 8

Question 9

Bonus method when forming a partnership with Initial Capital Divided Equally

Answer 9

Question 10

The partnership agreement provides:

Axel receives 10% of net income up to $100,000 and 20% of income over $100,000.
Berg and Cobb each receive 5% of income over $150,000.
Remaining income is divided equally among all three partners.
Net income for Year 2 is $250,000.

How is Axel’s allocation calculated for the following partnership agreement?

Answer 10

Question 11

What are the steps for admitting a new partner under the Exact Method

Answer 11

Question 12

What are the 3 methods for admitting a new partnership, when are they used, and what is their treatment

Answer 12

Question 13

How do you calculate the book value per common share when preferred stock is involved?

Answer 13

Question 14

What are the important dates and JEs for recording cash dividends

Answer 14

Question 15

What is a liquidating dividend

Answer 15

Dividend is greater than RE balance

Question 16

What is appropriated retained earnings?

Answer 16

Question 17

What is a scrip dividend, and what are the JE’s

Answer 17

A dividend when a company is short cash, an inplace of dividend payable, interest bearing note payable

Question 18

What is a stock dividend and what types are there

Answer 18

Issuance of stock to existing stockholders. There are two types, small stock and large stock dividends. The company declares the dividend at a certain percentage. Anything over 20-25% is generally considered a large stock dividend.

Question 19

What is the large stock dividends % and what the JE.

Answer 19

Question 20

Whats the difference between a stock split and a stock dividend?

Answer 20

Question 21

What is a quasi-reorganization and what are the steps?

Answer 21

A company with a large RE deficit balance may face bankruptcy and forced to reorganize.

Question 22

Partnerships with salary allowances

Answer 22

Partnership net income - special allowances to partners = remaining income/loss to be allocated to partners*
(*using partner percentages)

Question 23

Partnership with salary allowance example.

Answer 23

Question 24

JE for Recording property dividends and on what date

Answer 24

Note: If the property is stock, G/L = (FV - CV at declaration) X # of shares

Question 25

Recording property dividend JE

Answer 25

Question 26

What is a stock warrant

Answer 26

To increase marketability of bonds, issuer provides bondholders right to buy shares of stock of the company at a fixed price for a specific period. If the stock warrant can be sold separately, its a detachable stock warrant. The proceeds from the warrants are recorded to APIC and increases SH equity.

Question 27

What are the journal entries for recording, collecting, and reversing stock subscriptions?

Answer 27

Question 28

How are Property Dividends recorded/JE

Answer 28

Property is recorded at FV, any G/L is recorded when asset is sold. 1) Adjust asset to FV at time of distribution, record G/L for any difference 2) JE Dividends payable and retained earnings for the FV amount of property.

Question 29

Allocation of partnership net income/loss to partners

Answer 29

Question 30

What are the rules for Small stock dividends and the Journal entry

Answer 30

Question 31

Why does a company report a gain/loss on a property dividend?

Answer 31

> Company distributes assets (e.g stock) at fair value. > The Gain/loss = Fair value - carrying value > Its treated as if asset was sold before being distributed. > Gain/loss recognized even htough shareholders receive the benefit.

Question 32

How should the sales proceeds from issuing common stock and preferred stock for a lump sum be allocated?

Answer 32

Question 33

Small vs Large stock dividends. What are the percentage threshholds for each? What are they recorded at? And what are the JEs?

Answer 33

Question 34

Note: When detachable warrants are issued with a bond, the sales proceeds are allocated between the warrants and bond based on their FVs at issue date. The proceeds assigned to the warrants are recorded as ________ and the remainder is assigned to the __________

Answer 34

APIC, and the remainder assigned to the bond payable.

Question 35

Allocation of partnership net income/loss to partners equation.

Answer 35

Question 36

Calculate Dividends for Fully Participating Cumulative Preferred Stock

Answer 36

Question 37

What is the order of dividend payments

Answer 37

Preferred shareholders must be paid their arrears first. CS holders get theirs if there's any left

Question 38

What are the two treatment rules for dividends in arrears

Answer 38

Question 39

Stock dividends are ______ of capital, therefore there is no ____ on total stockholders equity

Answer 39

RECLASSIFICATIONS of capital, there is NO EFFECT on the total of stockholders equity.

Question 40

What is the purpose of a Quasi-Regoranization and what are the steps.

Answer 40

Purpose: To eliminate deficit in retained earnings and give company a fresh start. 1) Revalue assets and liabilities at FV. 2) Eliminate deficit in retained earnings 3) Net adjustments against Paid in capital, but not below 0.

Question 41

What is the impact of a liquidating dividend on retained earnings and additional paid-in capital (APIC)?

Answer 41

Liquidating dividends typically do not affect retained earnings, as they are a return of capital and reduce APIC. If the total declared dividend exceeds retained earnings, the portion up to the retained earnings balance is a regular dividend (reducing retained earnings), and the excess is a liquidating dividend (reducing APIC).

Question 42

How to Allocate Proceeds When Stock is Issued with Other Securities

Answer 42

Question 43

Trigger words for income bracketing and partner allocation 1) Up to $X: 2) Over $X: 3) Remaining income over $X:

Answer 43

Question 44

What are the key take aways for the Equity method accounting treatment for CS holders vs PS holders

Answer 44

COMMON STOCK: - 20-50% ownership: Equity method is used. CASH Dividends reduce the investment account. Investor recognizes a share of investee's net income. - Less than 20% ownership: Dividends are recognized as income. PREFFERD STOCK: - Regardless of ownership, preferred stock does not provide significant influence. - Dividends are always reported as income when declared, regardless of ownership percentage.

Question 45

When are credit losses not recognized for an impaired debt security?

Answer 45

Credit losses are not recognized if the entity has the positive ability and intent to hold the impaired security and expects to recover the entire cost basis of the security (no Other than temporaty impairment recognition). ​​

Question 46

How should a stock dividend be recorded under the equity method as an investor?

Answer 46

A stock dividend is simply noted in the records to show that the number of shares has increased and the price per share has gone down, but the total value of the investment stays the same. NO Journal Entry is Made.

Question 47

How do you calculate and record the liquidating portion of a dividend?

Answer 47

Question 48

Do stock dividends and cash dividends affect current liabilities

Answer 48

Question 49

"Under the bonus approach to adjust the capital accounts, Carrs unidentifiable asset debited for?

Answer 49

Psych, no debit to unidentifiable asset

Question 50

What are the steps to solve a partnership liquidation problem when noncash assets are sold and a partner has a loan?

Answer 50

Question 51

When a partner contributes assets or liabilities to a newly formed or existing partnership, how should the contribution be measured for the capital account and how is each item treated in the accounting records? Include rules for: Cash or property contributions Property with attached liabilities (e.g., mortgage) Liabilities assumed by the partnership

Answer 51

Question 52

When a company repurchases treasury stock above par but below original issue price, does the par value method result in a greater amount for APIC or retained earnings compared to the cost method? When would retained earnings be affected?

Answer 52

Question 53

Bonus, Exact, Goodwill - Treatment

Answer 53