F7: Stockholder's Equity Flashcards Preview

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Flashcards in F7: Stockholder's Equity Deck (37):
1

Capital stock is:

-Preferred stock + common stock
-This cannot be used for dividends
-AKA legal capital

2

Facts about common stock

-last in line
-right to vote

3

Book value per Common Share calculation

Common SHE / common shares outstanding

4

Common Stockholder's Equity formula

Total SHE
- Preferred stock outstanding
- Cumulative preferred dividends in arrears
= Common SHE

5

Facts about preferred stock

-Have preference in dividends
-No voting rights

6

Cumulative preferred stock

-Dividends not paid accumulate to be paid in the future
-Called "dividends in arrears"
-Must be paid before common stock dividends

7

Participating preferred stock

-Share equally the excess pro rata
-Fully participating (participate in excess without limit)
-Partially participating (participate in excess at a limited extent)

8

Convertible preferred stock

Can be exchanged for common stock at option of investor

9

Callable (redeemable) preferred stock

Can be repurchased at a specific price at option of entity

10

Mandatorily Redeemable preferred stock

-Liability
-preferred stock issued with a maturity date
-Gives a date that it MUST be bought back by the company

11

Examples of transactions that cause APIC

-Treasury stock at a gain
-Quasi-reorganization
-Issuance of liquidating dividends
-Conversion of bonds
-Declaration of small stock dividend

12

Retained earnings definition

Accumulated earnings (losses) during life of corporation that have not been paid out as dividends

13

Retained earnings formula

NI
- Dividends declared
+- Prior period adjustments (net of tax)
+- Retrospective accounting changes (net of tax)
+ Adjustments from quasi-reorganization
= Change in RE

14

Purpose of appropriations of RE

Disclose to the shareholders that some of the RE are not available to pay dividends due to legal/contractual reasons, or as a discretionary act of mgmt

15

Quasi-reorganization definition

An accounting adjustment that revises capital structure to eliminate a deficit and have a fresh start

16

Purpose of Quasi-reorganization

-To restate overvalued assets to their lower fair values
-To eliminate RE deficits

17

Steps involved in a Quasi-reorganization

1- revalue assets to current FV and liability to PV
2- bring RE to zero (by eliminating deficit)
3- Plug difference to APIC
Results in no change to total equity; just restructures it

18

Treasury stock definition

-Stock that has been issued to shareholders and subsequently reacquired
-Reduces SHE as a debit balance

19

2 methods of accounting for treasury stock

1- Cost
2- Par

20

Primary difference between cost and par methods

The timing of recognizing gains/losses on treasury stock transactions

21

Cost Method

- TS recorded at their reacquisition cost
- Gain/losses determined when TS is reissued
- APIC account used
- May decrease RE if APIC isn't big enough to absorb a loss

22

PAR Method

-Not commonly used
-TS recorded at par value
- Gain/loss not recorded until buy back
- APIC is used, but only for original value over par

23

Dividend definition

- A pro rata distribution by a corporation
- Represents a distribution of earnings

24

3 Dates for distributions (and definitions):

1- Date of Declaration (BOD formally approves a dividend)
2- Date of Record (no JE)
3- Date of Payment (date of actual payment)

25

Cash dividends treatment

- Paid from RE
- Paid only on authorized, issued, and outstanding shares
- NOT paid on TS

26

Property dividends treatment

- noncash assets
- on declaration date, property to be distributed is restated to FV
- any gain/loss recognized in income
- dividend liability should be recorded at FV

27

Scrip Dividends definition

- Form of notes payable where corporation commits to paying a dividend at some later date
- Usually used when there's a cash shortage

28

Liquidating dividends definition

-Occur when dividends to shareholders exceed RE
-Debit to APIC first to empty out and then to CS/PS

29

Stock dividends treatment

- No dividend income reported by shareholder, just changes
- Treatment depends on size of declaration

30

Treatment of a small stock dividend (>25%)

Reduce RE by FMV of stock

31

Treatment of a large stock dividend (>25%)

Reduce RE by Par value

32

Stock split treatment

No JE, just change to # shares outstanding and par value

33

2 methods to issue stock to employees

1- noncompensatory
2- compensatory

34

Noncompensatory stock option

- No JE until stock is purchased, then regular JE
- GAAP only

35

Requirements to be noncompensatory

- Eligible to all FT employees
- Time permitted to exercise rights is reasonable
- Any discount offered is reasonable

36

IFRS: Noncompensatory treatment

-Doesn't believe in noncompensatory
-Treats all employee stock options as compensatory

37

Compensatory stock option

-Plans are valued at FV of options issued
-FV determined by pricing model (such as Black-Scholes method)
-Compensation is recognized over service period (aka vesting period)