Flashcards in EQUITY Deck (71)
List the requirements for a quasi-reorganization.
1. Shareholder and creditor approval; 2. Retained earnings balance must be zero immediately afterwards; 3. No contributed capital account can have a negative balance afterwards; 4. Assets must be written down to market value; 5. Retained earnings must be dated for 3-10 years afterwards.
List the accounting steps in a quasi-reorganization.
1. Write assets to market value, further reducing retained earnings; 2. Reduce contributed capital to absorb earnings deficit; 3. If needed, change par value or number of shares of common stock to absorb remaining deficit.
Define "book value per share".
Common stockholders' equity per share of outstanding common stock at the end of the period.
Define "common stockholders' equity".
Total Owner's Equity after preferred dividend claims are removed.
What is the effect of a quasi-reorganization on total owners' equity?
Decrease in total owners' equity.
What is the effect of a quasi-reorganization on retained earnings?
Increase in retained earnings.
What is the effect on book value per share of a transaction that increases earning?
Increase in book value per share.
What is the effect of dividends in arrears on book value per share?
Decrease on book value per share.
Is there any additional participation to preferred stock if total dividends are not sufficient to provide common stock with dividends based on the fully participating preferred percentage?
There is no additional participation.
List the order of dividend payment if nonparticipating preferred stock is outstanding.
1. Preferred: dividends in arrears (if cumulative); 2. Preferred: current period dividend; 3. Common: remainder.
List the order of payment for partially participating stocks.
1. Dividends in arrears; 2. Current p/s dividend; 3. Preferred stock receives up to an additional percentage.
List the order of dividend payment when partially participating preferred stock is outstanding.
1. Preferred: Any dividends in arrears; 2. Preferred: Current period dividends; 3. Common: Preferred percentage x total par outstanding; 4. Preferred: Additional percentage; 5. Common: Remainder.
What dividends are paid before any other dividends are paid?
Preferred stock dividends in arrears.
Is there any additional participation to preferred stock if total dividends are not sufficient to provide the partially participating preferred percentage to both common stock and preferred stock?
The remainder of dividends after the basic preferred percentage is provided to common, is multiplied by the ratio: total preferred par value to total par value of both classes of stock.
List the two main Owners' Equity categories.
1. Earned; 2. Contributed.
Define "dividends in arrears."
Unpaid dividends for a particular year on cumulative preferred stock.
What does Owner's Equity represent.
Represents the residual interest in the net assets of an entity that remains after deducting its liabilities.
List the major Owners' Equity accounts for a corporation
1. Preferred stock; 2. Common stock; 3. Additional paid-in capital, preferred; 4. Additional paid-in capital, common; 5. Retained earnings; 6. Treasury stock.
Define "authorized shares."
The total number of shares that may be issued.
List the types of common stock rights.
1. Voting; 2. Dividend; 3. Preemptive.
What is the number of common shares issued?
The number of shares ever issued by the firm but not retired = # of outstanding shares + # treasury shares.
How is the number of shares in the Treasury determined?
The number of shares purchased by the issuing firm and not yet reissued.
What is the primary measurement basis for contributed capital?
The historical value of direct investments made in the firm by investors.
Define "legal capital."
The par value of the stock or the stated value of the stock issued.
List the main types of ownerships in business organizations.
1. Sole proprietorship; 2. Partnership; 3. Corporation.
What purpose does legal capital serve?
1. Establishes minimum investment; 2. Provides protection for creditors (dividends may not be paid from legal capital).
List the types of preferred stock rights.
1. Nonvoting; 2. Dividend preferences; 3. Liquidation preferences.
How is the number of shares outstanding determined?
The number of shares currently held by stockholders.
Under what condition is retained earnings debited on conversion of preferred stock to common stock?
Total recorded value of preferred is less than par value of common on conversion.