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Flashcards in Stockholders' Equity Deck (32):

Issue C/S - JE

Dr. Cash from proceeds received from sale
Cr. C/S @ par or stated value (the legal value)
Cr. Paid-in capital in excess of par (the excess of the cash over the par value or stated value)



Share with Common Stockholdersin dividend distributions after both preferred and common stock holders receive a specified level of dividend payment.



Dividends not paid in any year (dividends in arrears) must be made up before distribution can be made to C/S holders (not a liability until they are declared)
Should be disclosed paranthetically in the footnotes



P/S holders have an option of exchanging their stock for C/S at a specified ratio.



Corporation has the option to repurchase the P/S at a specified price.
- If called no gain or loss is recognized on the I/S
Cr. Gains - taken to paid in capital acct.
Dr. Losses - charged to R/E


Call back P/S - JE

Dr. P/S (call back # of shares x par value)
Dr. P/S paid in accounts (original APIC for P/S x # of shares)
Dr. R/E (if loss
Cr. Cash (amount paid)
Cr. Paid in capital from P/S retirement (if gain)


Non-redeemable P/S

Will be shown in the equity section


Redeemable P/S

Manditorily redeemable - must be classified as a liability on the B/S
If redeemable for cash should be classified outside of permanent equity (as temporary equity) this is a messanine account that falls between liabilities and SHE.

If the P/S is redeemable at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurance of an event not within the control of the issuer.


Stock Subscriptions

SEC registrants must show this as a contra-equity account not an asset (contra to C/S)
Corporation is selling Stock on an installment basis.
They will not issue any stock until they receive the total amount owed to them.


Stock Subscription- JEs

At Subscription (record subscription)
Dr. Subscription receivable (balance)
Dr. Cash (downpmt amount)
Cr. C/S Subscribed (par)
Cr. Paid-in capital in excess of par (subscription > par)

Cash receipt & issuance
Dr. Cash (balance)
Cr. Subscription receivable (bal)
Dr. C/S prescribed (at par)
Cr. C/S (at par)


Treasury Stock - Cost method - JEs

Acquired back shares of Treasury Stock
Dr. Treasury Stock (at cost)
Cr. Cash

Dr. Cash (received)
Cr. Treasury Stock (remove at the original cost)
Cr. Paid-in capital treasury stock


Treasury Stock - Par value - JEs

Dr. Cash
Cr. C/S (at par)
Cr. Paid-in captial in excess of par

Retiring the Stock
Dr. APIC in excess of par value (# of shares x (SP-Par)
Dr. Treasury Stock (at par)
Cr. Cash
Cr. Paid-in capital for T/S (gain from retirement)


Retirement of Stock

Buying back treasury stock & not selling it back (formally retiring)
Dr. Common Stock (# of shares x par)
Dr. Paid in cap in excess of par (# of shares x original paid in capital in excess of par)
Dr. Retained earnings (if a loss)
Cr. Treasury Stock (for Book value, this is originally a Dr. Balance)
Cr. Paid-in capital from retirement (if gain)



Date of declaration: only on this date is SHE reduced
Dr. RE
Cr. Div Payable

Date of record - no JE only a memo entry

Payment Date: when liability is paid
Dr. Div Payable
Cr. Cash
No effect on SHE (this was affected at the date of declaration.


Property Dividends

Giving away some type of an asset as a dividends.
Declaration at FMV
1. the asset is carried at Book Value so it has to be brought to FMV.
If FMV > BV bring asset up to FMV
Dr. Property
Cr. gain on disposal of asset
If FMV< BV write asset down to FMV
Dr. Loss on disposal of asset
Cr. Property
Record the property div at FMV
Dr. Retained Earnings (fmv of property)
Cr. Property div payable
(reduction in SHE when the property div is declared)
When asset is given away:
Dr. Property div payable
Cr. Property


Liquidating Dividends

Have to be disclosed in the footnotes
-dividends based on other than earnings
-return of capital to S/H and should be so disclosed
When company declares a dividend > than what's in R/E. Bal in RE 20k Div declared 45k
Dr. RE 20k
Dr. Paid in captial 25k (liquidating div is the amount which reduces Paid in capital)
Cr. Dividends Payable 45k


Scrip dividends

Issuance of promissory notes to pay dividends in the future (may bare interest) instead of cash.
Dr. RE (decreased SHE)
Cr. Scrip dividends payable
Scrip dividends are a liability which is extinguished by payment.
Dr. Scrip dividends payable (amount owed)
Dr. Interest Expense
Cr. Cash


Stock Dividends

Two Types:
Small: increases the # of shares by 20-25%
Large: Increases the # of shares by more than 20-25%


Small Stock Dividend - increases # of shares by 20-25%

Date of declaration:
Dr. R/E (FMV of the shares)
Cr. C/S distributable
Dr. Stock dividend distributable
Cr. C/S


Large Stock Dividends - increases # of shares by more than 20-25%

Date of declaration:
Dr. R/E (for the Par value of the shares)
Cr. C/S Distributable (distribution for the par value)
Dr. Stock dividend distributable
Cr. C/S


Stock Splits

Changes the number of shares outstanding and the par value per share.
2 for 1: take each share and split it to 2 shares- par value decreases by 1/2
Reversed stock split: 1 for 2: Number of shares decrease by 1/2 - par value doubles
*There's no JE for stock splits- issue a Memo (does not affect SHE)


Share-based payments to Employees

Fair value of Options at grant date x Number of options= Deferred compensation expense.
Dr. Deferred compensation exp.
Cr. Stock options outstanding (paid in cap account)
*No effect to SHE- Deferred comp is a contra account to stock options outstanding.

During each of the years until the stock based comp can be excercised:
Dr. compensation exp
Cr. deferred compensation

When the option is excercised:
Dr Cash (this is the increase in equity)
Dr. Stock options outstanding (to remove the stock option)
Cr. C/S (at par)
Cr. APIC (plug)


Stock appreciation rights (SAR)

Allow employees to receive stock or cash equal in amount to the difference between the market value and some predetermined amount per share for a # of shares.
Allows employees to receive the amount of share appreciation without having to make cash outlays as is common in stock option plans.


Corporate Bankruptcy - Statement of affairs

Presents the current market values of the assets and the status of the various categories of the equity interests of the corp.
Classifies assets in the following order of priority (highest to lowest)
Fully secured creditors
Partially secured creditors
Unsecured creditors
- Priority
-Non Priority


Quasi Reorganization

Allows companies to avoid formal bankruptcy proceedings through an informal proceeding.
Deficit in R/E - no pmt in dividends.
Procedure is applicable during a period of declining price levels.


Quasi Reorganization procedures

1. authorization from Stockholder & creditors
2. Revaluation of assets to current values (fair values) normally the assets are over valued.
3. Elimination of any deficit by charging Paid-in capital.


Quasi Reorganization JEs

Write down assets
Dr. R/E (write down)
Cr. Assets (write down)

To eliminate deficit:
Dr. Paid-in capital (deficit)
Cr. R/E (deficit) to bring the RE to zero

**If ther's not enough in APIC to eliminate the deficit to zero use the C/S account and take away equity from the account.
Dr. C/S
this will create enough equity in APIC to eliminate the deficit in R/E.


Stock Rights

Existing stockholders are given rights to buy additional stock at a certain value for a certain period of time.
Announcement: Memo entry - no JE
When the rights are excercised and converted to Stock - affects SHE
Corp receives cash - this is the amount of the increase to SHE


Book value of Common Stock ratio

Applies only to C/S
Total SHE - P/S SHE = C/S balance of SHE

C/S balance of SHE/outstanding shares of C/S
*Treasury stock is not outstanding so should be backed out of the o/s shares.


Dividend payout

measures percentage of earnings distributed as dividends

Dividends per share/Earnings per share (always use basic earnings per share)


Rate of return on common stockholders' equity

measures the return earned on the stockholders' investment in the firm.

NI available for C/S holders / C/S holders equity (make sure to deduct the P/S equity from total equity) and take the average of the CY and PY/2


Debt to equity

shows creditors the corporation's ability to sustain losses
Total debt (all liabilities)/Stockholder's equity