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Flashcards in Stockholders' Equity Deck (22):

On what date should the company reduce its working capital (record a liability) for the dividend?

On date of declaration.


How are dividends paid?

Dividends are paid on # of outstanding shares as of the date of record.


When is dividend revenue recorded?

On the date of record.


How are small stock dividends recorded?

At FV of shares issued. 1. Reduces R/E but not total equity.
2. No APIC is recorded for shares issued in a small stock dividend.


small stock dividend


How are large stock dividends recorded?

At PV of shares issued.


How is a cumulative dividend not paid reported on equity?

Reported on F/S notes, not as a a liability or change in equity balance.


Basic difference between CS and PS owners

CS owners have stock rights set by state of incorporation while PS owners have rights set by the stock contract.


How is treasury stock reported under the cost method?

As a negative figure w/in equity.


cost method

1. Treasury stock is reported at cost as a negative in equity.
2. When TS is sold, anything above treasury stock cost is APIC.


par value method

1. Original recording of treasury stock is reversed (APIC from sale of stock is removed when shares are bought back).
2. When TS is sold, anything above par value is APIC.


When stock is repurchased and retired, is CS balance reduced by PV or FV of shares?

PV of shares b/c both CS and APIC amounts are removed.


Do the cost method and par value method have the same impact on stockholders' equity on stock repurchase?



How is treasury stock reported under the par value method?

As a negative figure w/in equity.


When a partnership or proprietorship is incorporated, assets and liabilities are recorded at...



APIC in an incorporation =

[FV of assets - FV of liabilities] - stock issued
contributed capital - stock issued


When is the value of stock options established?

On the grant date.


How is the annual expense of stock options reported?

[(amount per option at grant date * # of options) / # of years you must work to earn the option]


A stock option plan is compensatory when...

Only one or a few members of the company are rewarded.


noncompensatory stock option plan

1. Substantially all employees must participate in some equitable fashion.
2. No expense is recognized for this plan.


What is not one of the variables that must be taken into account for a compensatory plan?

1. Expected income to be earned by the company over the life of the options.
2. Exercise price, expected volatility, and current market price must be accounted for.


Difference between stock option plans and stock appreciation rights (rights to receive cash)

W/stock appreciation rights, the owner will receive cash.
1. Stock options (use option price at grant date).
2. Stock appreciation rights (use option price applicable to end of year in question; usu. most recent year is in question).