F1 - M4 - Stockholders' Equity: Part 2 Flashcards
(23 cards)
What is the transaction for stock that is issued above par value?
Cash will be debited for the proceeds which will increase assets
common or preferred stock will be credited which will increase equity
APIC will be credited for the excess over par
What is the transaction for stock issued at par?
Cash will be debited which will increase assets
common or preferred will be credited which will increase equity
No entry to APIC.
What is the transaction for stock issued below par?
This one is different since you have to record the common stock being issued at par. For that reason, you would debit cash
debit APIC for the loss
Credit common stock at it’s par value.
What is a stock subscription? What is the entry?
An agreement to sell a specified number of shares at an agreed upon price.
Once you get into this agreement, you cannot debit cash since no cash changed hands. Here is the entry:
Subscription receivable account is debited. General rule, this is a contra equity account
Capital stock subscribed is credited
APIC is credited for any gain or premium they are willing to pay
Where is the one exception where the subscription rec would be considered an asset?
If they are paid after year end, but before the financial statements are issued. This will turn into an asset which will increase assets and equity.
Once you get paid the stock subscription, what is the entry?
Debit cash and credit subscriptions rec.
It is important to note, than when the buyer pays the stock subscribed at the full price, then we give stock certificates to those users. So for example, if they owed us 1,000 and we got a 1,000 those are the people we can give stock subscriptions to. If they gave us 500 instead of 1,000 then we cannot. We got rid the credit subscriptions account but we have to get rid of the common stock subscribed account.
That would debit common stock subscribed at par, and credit common stock issued at par.
DR: Common Stock Subscribed
CR: Regular Common Stock
If the buyer default on a subscription, what is the corporations three options?
They can issue stock in proportion to the amount paid - So for example, if they owed us 1000 but they gave us 500, then we would take .5 (500/1000) times the number of shares (lets say 200), and that is how much would be recognized.
DR: Common Stock Subscribed - (100 * par) (200.5)
CR: Regular Common Stock - (100 * par) (200.5)
Refund the partial payment
Retain the partial payment.
DR: Common Stock Subscribed
CR: APIC
What are stock rights and what is the entry?
This is where you give existing shareholders the option to buy more shares. Normally to entice these shareholders, you give them an option to buy the shares at a price lower than the market price. For that reason here is the entry:
Debit Cash (number of shares * exercise price)
Credit: Common Stock (number of shares * par)
Credit: Additional Paid in Capital (plug)
What is stock issued for outside services?
This is when you pay someone with stock instead of cash, and the value of the stock is measured at FMV. Here is the entry
Expense at FMV - Debit
Common stock at par - Credit
Additional paid in capital - Credit
Are dividends recorded in the income statement?
No they come out of retained earnings, and sometimes APIC if the state allows. That means you have nothing in RE.
Paying a dividend goes where on the statement of cash flows?
It is a financing outflow.
Are dividends paid on treasury stock?
No, just the outstanding stock which is stock issued - repurchased stock.
What are property (In-Kind) dividends?
Distribution of non cash assets to shareholders, measured at the FMV of the property. Here is an example of an entry using property.
NBV of property is 30, FMV is 50
DR: RE for 50
DR AD for 40
CR PP&E for 70
CR Gain for 20
What is a scrip dividend, and what is the journal entry?
A scrip dividend is used when there is a cash shortage, and the corporation commits to paying the dividend at a later date. Here is the entry for it:
On the date of declaration they record:
DR: RE
CR: Notes Payable
What is a liquidating dividend?
This is when a dividend to a shareholder exceeds retained earnings. This means that the corporation does not have enough earnings to pay out the shareholder. When this happens here is the order of entry.
DR Retained earnings, and then paid in capital. If you do not have enough RE and APIC then you also debit common stock or preferred stock.
The credit would be cash.
What is a stock dividend?
This is when you distribute your own stock to shareholders. To determine how much to reduce retained earnings buy, you need to know if it is a small stock dividend or large stock dividend.
Small would reduce RE by FMV
Large would reduce RE by Par
What is classified as a small stock dividend?
Small stock is less than 20-25% of the shares previously outstanding. This is calculated by dividing the stock dividend to the shares outstanding. Debit RE at FMV and credit common stock at par value. Any excess goes to APIC.
What is classified as a large stock dividend?
Large stock is greater than 20-25%. This is calculated by dividing the stock dividend to the shares outstanding. Debit RE at Par and credit common stock at par value. Any excess goes to APIC.
For large stock dividends is there an exception where you could treat the dividends as a stock split?
Yes
What is a stock split, how does this work?
This is when you increase your total number of shares outstanding, and decrease your price per share. No journal entry. Does not impact RE or stockholders equity.
So for example, if they had a 2 for 1 stock split; they would go from 100 shares at 10 par to 200 shares at 5 par.
What is a reverse stock split?
This is the reverse of a stock split. Number of shares go down, but the price per share goes up.
So if you had 100 shares at 10 par and they did a 2 for 1 reverse stock split. Then you would have 50 shares at 20 par.
What is the statement of changes in shareholder’s equity?
This just shows how equity changed, and breaks out in what areas equity changed. So if equity went up or down, how did RE change, OCI change, common stock change.
