Stockholders Equity Flashcards

2
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.

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3
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

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4
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.

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5
Q

When are dividends in arrear recorded for cumulative preferred stock?

A

They are not accrued until declared.

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6
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.

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7
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

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8
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

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9
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

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10
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

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11
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

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12
Q

What is the affect on APIC from a stock split?

A

Stock splits only affect par value - APIC remains the same.

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13
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

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14
Q

What interest rate is used to discount stock options?

A

The risk-free interest rate

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15
Q

What date is used as the measurement date for share-based payments classified as liabilities?

A

The settlement date.

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16
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

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17
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

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18
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

19
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

20
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

21
Q

How is the dividend per share payout ratio calculated?

A

Dividends per share / earnings per share

22
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.

23
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

24
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

25
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

26
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

27
Q

Cumulative vs. non cumulative PS

A

Cumulative - all or part of div not pd in any year accumulates and must be paid in future

28
Q

Participating vs non participating PS

A

Fully participating = PSh participate in excess div w/o limits
Non participating = limited to doc provided by preference

29
Q

Convertible PS

A

Can exchange for CS (at option of stockholder)

30
Q

Callable (redeemable) PS

A

Can be called (repurchased) at specified price at option of issuing corp

31
Q

Mandatorily redeemable PS

A

PS issued with maturity date - must be bought back by co by this date

32
Q

Declaration date

A

Date BOD formally approves div

Div
Div payable

33
Q

Date of record

A

Date that BOD specifies as the date the names of the shareholders to receive div are determined

No JE

34
Q

Date of pmt

A

Date on which div distributed

Div payable
Cash

35
Q

Option price

A

= strike/exercise price

Price at which underlying stock can be purchased

36
Q

Characteristics of non compensatory stock option/purchase plan

A
  • substantially all full time employees may participate
  • offered to eligible employees equally
  • time to exercise rights is limited to reasonable pd
  • any discount from mkt price is no grater than would be a reasonable offer of stock to shareholders or others
37
Q

Exercise date

A

Date by which option holder must use the option to purch underlying

38
Q

Grant date

A

Date option is issued

No JE

39
Q

Vesting period

A

Period over which employee has to perform services in order to earn the right to exercise the options

40
Q

Is there a g/l recognized in equity transactions (TS Trans)?

A

No

41
Q

What happens on declaration date?

A

Record div liab

Decrease RE

42
Q

What happens on pmt date?

A

Decrease cash

Decrease div liab

43
Q

How is a liquidating dividend accounted for?

A

Return OF investment

vs return ON investment