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F7 - Equity, EPS, and Cash Flows Flashcards

1
Q

What happens with a gain (loss) on the sale of treasury stock?

A 
Gain = Credited to APIC
(Loss) = Debited from RE.

NEVER FROM INCOME STATEMENT!

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2
Q

What is the formula for RE?

A 
Net Income (loss)
(-) Dividends DECLAREDDDD!!!!!!
(+/-) Prior period Adjustments
(+/-) Retrospective Acct changes 
(=) RE
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3
Q

What’s the tea on Donated Stock?

A

There is no impact on Equity, but shares outstanding decreases. This leads to greater NBV per common share.

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4
Q

Where do you report dividends in arrears or dividends not declared?

A

NOWHERE! Only as a footnote!

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5
Q

What are things I need to know about treasury stock?

A
  • Always deduct from Equity, so it reduces it.
  • Always reduces shares outstanding.
  • Has it own account on the BS, and does not mix up with common stock (even though it may start as common stock).
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6
Q

What happens when you buy treasury stock with the intent to retire it?

A

Positive (Negative) = Re-Acquiring Price - Par Value

If (Negative), credit to APIC.
If Positive, Debit to APIC, then RE.

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7
Q

How do you calculate gain (loss) from resale of treasury stock after you buy back?

A

Gain (Loss) = Re-Sale Price - Re-Acquiring Price

If Positive, credit to APIC.
If (Negative), Debit to APIC, then RE.

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8
Q

How do you allocate dividends between common and preferred stock?

A

Total Common Stock Par Value * Preferred Stock %
Total Preferred Stock Par Value * Preferred Stock %

If I still have dividends, then allocate prorata until I arrive @ Total Dividends.

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9
Q

How do you treat APIC when you buy and sale treasury stock?

A
  1. Make sure to account for EVERY TRANSACTION.
  2. Treat APIC like COGS/Inventory. If you have initial APIC, and then purchase your own common stock, then APIC will decrease by APIC * # of shares repurchased, because you no longer have APIC.
  3. When rebought, then your APIC will increase by gain or (loss).
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10
Q

What is the formula for Book Value per Common Share?

A

NBV per Common Share = Common Equity / Common Shares Outstanding

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11
Q

What is the formula for Common Equity?

A

Total Equity
(-) Preferred Stock Outstanding
(-) Cumulative preferred dividends in arrears
(=) Common Equity

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12
Q

What is the formula for Common Shares Outstanding?

A

Common shares outstanding = Total shares issued - Treasury Shares

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13
Q

How do you allocate proceeds from sale of stock?

A
  1. Calculate total market value for each kind of stock.

2. Allocate actual proceeds received prorata based on #1.

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14
Q

What happens when dividends are declared?

A

RE is decreased (debit) by the amount of the dividend on the date of declaration (and a liability (credit) is created if not paid immediately). Property dividends are recorded at FMV.

ALWAYS DATE OF DECLARATION!!!! NOT PAYMENT!

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15
Q

What is a large stock dividend?

A

When the stock dividend is >20% to 25% of outstanding shares.

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16
Q

How do you account for large stock dividends?

A

RE
Common Stock Distributed

Common Stock Distributed = Par Value of Shares * Dividend %

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17
Q

What is a small stock dividend?

A

When the stock dividend is <20% to 25% of outstanding shares.

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18
Q

How do you account for small stock dividends?

A

RE
Common Stock Distributed
APIC - From Stock Dividend (Plug)

RE = Fair Value of Shares * Dividend %
Common Stock Distributed = Par Value of Shares * Dividend %
APIC - From Stock Dividend = Plug

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19
Q

What is a liquidating dividend?

A

Liq Dividend (return of cap) = RE - Div Declared

You need to zero out to get out! Once you zero RE, the remaining amount reduces APIC because it is a return of capital, and I don’t have anymore RE to give away! JUST LIKE REG!

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20
Q

What happens to a company that declares stock dividends?

A

RE

Common Stock

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21
Q

What happens to a company that receives stock dividends?

A

No revenue is recorded, but cost per share decreases. (I have more stock, at a lower price).

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22
Q

What is the JE of subscribed stock?

A

Shares = 1,000

Par Value = $5
Market Value = $18
Down Payment $3

Cash $3,000
Sub AR $15,000
Common Stock $5,000
APIC - CS $13,000

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23
Q

What is the entry for Stock Rights EXCERCISED?

A

Regular CS entry
Cash
Common Stock
APIC

24
Q

What is the cost method in relation to Treasury Stock?

A
  1. Original Issue = Normal entry
    Cash
    Common Stock
    APIC - CS
  2. Buy back above issue price =
    Treasury Stock @Market (this will be cost of TS)
    Cash @Market
  3. Reissue above cost =
    Cash @Market
    Treasury Stock @Cost
    APIC - TS Plug
4. Reissue below cost = 
Cash                     @Market 
APIC - TS              @Balance
RE                          Plug
                  Treasury Stock         @Cost
25
Q

What is the Par Value method in relation to Treasury Stock?

A
  1. Original Issue = Normal entry
    Cash
    Common Stock
    APIC - CS
  2. Buy back above issue price =
    Treasury Stock @Par (this will be cost of TS)
    APIC - CS @Par
    RE Plug (if APIC is not enough)
    Cash @Market
  3. Buy back below issue price =
    Treasury Stock @Par (this will be cost of TS)
    APIC - CS @Par
    APIC - TS Plug (if APIC is not enough)
    Cash @Market
  4. Reissue shares above/below cost =
    Cash @Market
    Treasury Stock @Balance
    APIC - CS Plug
26
Q

What happens when a company redeems stock rights and the rights have not been excercised?

A

Stockholder’s Equity is reduced by the redemption price * #shares

27
Q

What are the basic bitches of Stock options?

A
  1. Stock options acct increases on the GRANT date.

2. Stock options acct decreases on the EX date.

28
Q

When do you begin amortizing comp expense?

A

Period between between GRANT date and the EX date.

29
Q

How are Stock Ops valued?

A

@ GRANT date, @ FV.

30
Q

What is the JE to record comp exp?

A

Comp Exp

APIC Stock Op

31
Q

What is the JE to record exercise of Stock Op

A

Cash
APIC Stock Op
Common Stock
APIC CS

32
Q

What is the formula for Basic EPS?

A

Basic EPS = Income avail to common SH/ WAvg of common shs outstanding

33
Q

What is income available to common shareholders?

A

Net income
(-) Dividends declared on preferred stock
(-) Dividends in arrears on preferred stock

34
Q

What is the formula for Diluted EPS?

A

Diluted EPS = Income avail to common SH + Interest on dilutive securities (net of tax) / WAvg of common shs outstanding

35
Q

How do you calculate Interest on dilutive securities for convertible bonds?

A

(Bond Face Value * Coupon Rate%) + Amtz Discount/Premium

36
Q
A
37
Q

How can you tell if a security is dilutive?

A

When Basic EPS > than Diluted EPS

38
Q

What is another way to calculate Diluted EPS?

A

Savings / New #shares!
Ex. 7% convertible bond, convertible into 40 shares with 30% tax rate.

What do I save?
Savings = $1,000 * 7% * 70% = $49
New #shares = 40

Diluted EPS = $49 savings / 40 shares

39
Q

What is the one potentially dilutive security that may be included in Basic EPS?

A

Contingent shares, only if all conditions are met.

40
Q

What is the antidilutive rule?

A

Never consider shares that, if converted, increase EPS.

41
Q

What is the basic bitch of stock options on the Diluted EPS formula?

A

Exclude Stock Ops if:
Exercise Price > Avg Market Price.

Include Stock Ops if:
Exercise Price < Avg Market Price.

42
Q

What is the formula for accumulated preferred dividends?

A

Accumulated preferred dividends = #shares * Par Value * %

This is calculated ALWAYS! Even if dividends were not declared!

43
Q

What are the items on the Investing Cash Flows?

A

Non-current assets

44
Q

What are the items on the Financing Cash Flows?

A

Debt, non-current liabilities and equity.

45
Q

What are the items on the Investing Operating Cash Flows?

A

Net Income, current assets, current liabilities (except for debt and current portion of LT liabilities).

46
Q

What are the items that need to be reported as supplemental disclosures using the indirect method?

A

Interest and income taxes.

47
Q

What is the formula for cash received from customers?

A 
Revenues
(-) Increase in AR
(+) Decrease in AR
(+) Increase in Unearned Revenue
(-) Decrease in Unearned Revenue
(=) Cash Received from Customers
48
Q

What is the formula for cash paid to suppliers?

A 
COGS 
(+) Increase in Inventory
(-) Decrease in Inventory
(-) Increase in AP
(+) Decrease in AP
(=) Cash Paid to Suppliers
49
Q

What is the formula for cash paid to employees?

A

Salaries & Wages
(-) Increase in Wages Payable
(+) Decrease in Wages Payable
(=) Cash Paid to Employees

50
Q

What is the formula for cash paid for other expenses

A 
Other Expenses
(+) Increase in Prepaids
(-) Decrease in Prepaids
(-) Increase in Accrued Liabilities 
(+) Decrease in Accrued Liabilities
(=) Cash Paid to Other Expenses
51
Q

What is CLAD?

A 
The adjustments to net income from operating activities:
C = Current assets and Liabilities
L = Losses and Gains
A = Amortization & Depreciation
D = Deferred items
52
Q

How are lease payments reported in the CF stmt?

A 
Principal = Financing Activities
Interest = Operating Activities
53
Q

What are the required disclosures under the direct method?

A

Income taxes paid, reconciliation of net income to operating cash flow, and major classes of gross cash receipts.

54
Q

What does a defined benefit pension plan FS need to have?

A
  1. Statement of Net Assets Available for Benefits.
  2. Statement of Changes in Net Assets Available for Benefits.
  3. Statement of Accumulated Plan Benefits.
  4. Statement of Changes in Accumulated Plan Benefits.
55
Q

What does a defined contribution plan pension plan FS need to have?

A
  1. Statement of Net Assets Available for Benefits.

2. Statement of Changes in Net Assets Available for Benefits.

56
Q

How are benefit pension plan investments reported?

A

@ FV

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