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Flashcards in Stockholders Equity Deck (25)
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1
Q
When common stock and preferred stock are issued in a lump sump purchase- how is APIC allocated?
A
APIC for each is allocated by its respective % of the total FMV of the shares x the proceeds.
2
Q
When is APIC recorded on a stock subscription?
A
APIC increases on date subscription is recorded - not on the date paid for or issued
3
Q
To what extent is retained earnings restricted if legally restricted due to Treasury Stock?
A
It will be restricted to the extent of the balance in the Treasury Stock account.
4
Q
When are dividends in arrear recorded for cumulative preferred stock?
A
They are not accrued until declared.
5
Q
When are dividends in arrears included as a disclosure and not an accrual in the financial statements?
A
If a year passes and no Cumulative Preferred Stock is declared- then the dividends in arrears are included as a disclosure - not an accrual in the Financial Statements.
6
Q
What is the gain or loss when a non-monetary asset is distributed to a shareholder?
A
The gain or loss is the difference between the FMV of the asset distributed at the date of distribution and its carry amount on the company's books
7
Q
What is the effect on retained earnings when a non-monetary asset is distributed to a shareholder?
A
The effect on Retained Earnings is the Carrying Amount of the asset

RE will be debited when the dividend is declared for the FMV of the asset- which is more (or less) than the carrying amount

Gain/Loss recorded when the asset is distributed will offset the original effect of the debt to RE and will be a wash

The net effect of the entry is that RE will decrease by the CV of the asset
8
Q
When is Retained Earnings debited for FMV of Stock for a stock dividend?
A
When Stock Dividend is less than 25% of Common Stock outstanding
9
Q
When is Retained Earnings debited for Par Value for a stock dividend?
A
When Stock Dividend is greater than 25% of common stock outstanding
10
Q
What is the effect of a stock dividend or a stock split on total shareholder equity?
A
Stock dividends and stock splits both have no effect on Total Shareholder Equity
11
Q
What is the affect on APIC from a stock split?
A
Stock splits only affect par value - APIC remains the same.
12
Q
When is compensation expense recorded at the time of grant for a stock option?
A
Compensation expense is recorded at the time of grant if options are exercisable immediately

They are based on past service.

Expense recognized : FV Stock Option x # of Shares
13
Q
What interest rate is used to discount stock options?
A
The risk-free interest rate
14
Q
What date is used as the measurement date for share-based payments classified as liabilities?
A
The settlement date.
15
Q
How are compensation costs for share-based payments classified as liabilities measured?
A
Compensation costs for share-based payments classified as liabilities are measured by the change in the fair value of the instrument for each reporting period
16
Q
What is the net increase to shareholder equity in a reorganization where a company pays cash and issues stock to satisfy unsecured creditors?
A
Net increase to SHE : Gain on settlement of debt + Credit to SHE from stock issuance
17
Q
What is the primary purpose of a quasi-reorganization?
A
To eliminate a deficit balance in RE by restating its assets to Fair Value

It does not directly protect a company from its creditors
18
Q
How is return on Common Stockholder's Equity calculated?
A
(Net Income - P/S Dividends) / Average Common Stockholders Equity

Note: Average CSE : Common Stock + RE
19
Q
How is book value per share of common stock calculated?
A
Total Common Stock
- Total Preferred Stock
- P/S Dividends in Arrears
- P/S Liquidation Premium
:Total Book Value

Book Value per Share : Total Book Value / Shares outstanding
20
Q
How is the dividend per share payout ratio calculated?
A
Dividends per share / earnings per share
21
Q
How is basic Earnings Per Share (EPS) calculated?
A
(Net Income - Preferred Dividends) / Average C/S Outstanding

Note - If cumulative- subtract the P/S dividend regardless of whether or not they're declared.
22
Q
For EPS purposes- which date is used for calculation purposes when a stock split or stock dividend has occurred?
A
For EPS purposes- treat C/S stock splits or stock dividends as if they occurred at the beginning of the year- regardless of when actually issued during the year
23
Q
For which areas is EPS required to be shown?
A
EPS is only required to be shown for Income from Continuing Operations and Net Income.

All others (discontinued operations- extraordinary items) can be shown on the Financial Statements or in the notes
24
Q
When do stock options increase share outstanding?
A
Only if they are dilutive.

Their exercise price is LESS than the market value

If not- you ignore them in the calculation
25
Q
How is EPS calculated when convertible bonds are taken into consideration?
A
[Net Income + Bond Interest (Net of Tax)] / (Average Common Stock Shares + Convertible Equivalents)

Bond interest is added back because if converted- there would be no bond interest expense

Contingent Issue Agreements are included in Diluted EPS if contingency is met