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Flashcards in Stockholder's Equity Deck (28)
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1

Subscription journal entries

Cash
Subscriptions Receivable
CS subscribed - at par
APIC -CS

Cash
CS subscribed
Common Stock - at par
Subscriptions receivable

To refund and cancel:

APIC - CS
Common stock subscribed
Subscriptions Receivable
Cash

To keep down payment:

APIC-CS
Common stock subscribed
APIC -forfeited subscriptions
Subscriptions receivable



2

Donation of stock by shareholder back to the entity

Donated Treasury stock - at fmv
APIC _TS

3

Treasury stock - cost method

COTS

repurchase - NO APIC
resell - APIC TS plug
retire - APIC TS plug

Treasury stock - always at repurchase cost

4

Treasury stock - par value method

PARTS

repurchase - APIC TS
resell - APIC TS
retire - NO APIC

Treasury stock - always at par

5

Preferred Stocks - dividend computation
CUMULATIVE , NON PARTICIPATING

preferred as to dividends receipt but NOT A GUARANTEE

If cumulative:

dividend in arrears
+ current year dividends
= total dividends to PS shareholders

net income
- PS dividends
= NI available to common stock holders

6

PREFERRED DIVIDENDS - non cumulative
participating

Dividends =

current year dividends
+ share of excess net income after
deducting CS share (relative par values)

Net income
minus PS dividends
Balance
minus %(PS%) x CS total par value
Balance to be allocated to both PS and CS by relative par values



7

Stock options - COMPENSATORY

NO ENTRY UPON GRANTING OF OPTIONS
At exercise, record like normal stock issuance.

8

Stock options - NON COMPENSATORY

record compensation expense based on fair value of the options when granted - when the stock options are issued.
GRANT DATE IS ISSUANCE DATE

1. share based payment as equity
2. share based payment as liability

9

Share based payment as equity (FV of grant date)
STOCK OPTIONS

use estimated FV at grant date
total compensation cost - amortized SL over
service period required (vesting period)

example: stock options

compute total compensation expense=
option fair value # of options
amortize this straight line

AT GRANT DATE:

APIC -deferred compensation (total)
APIC-stock options outstanding

AT YEAR END:

compensation expense
APIC -deferred compensation

AT EXERCISE:

cash (fv of stock)
APIC -stock options outstanding
Common stock
APIC -CS

AT EXPIRATION W/O ISSUANCE:

APIC -stock options
APIC - expired stock options

10

Share based payments classified as liabilities
STOCK APPRECIATION RIGHTS

stock or cash given equal to the difference in market value and some predetermined amount per share for a certain number of shares

record compensation expense with amount based on changes in market value of stocks before measurement date.

IF VESTED:

Compensation expense
Liability for appreciation rights
#increase in market price

computation:
increase in market price x time elapsed over total vesting years

up or down, reverse entry

Liability for appreciation rights
Cash
or APIC - if payable in shares
#exercise

11

Cash dividends

RECORD AT DECLARATION DATE

Retained earnings
Cash

12

Scrip dividends

RE
Notes payable

13

Stock dividends

Small less than 20%-25%

RE
CS
APIC-CS at FMV

Large greater than 25%

RE
CS - at par (no APIC)

14

Partial liquidating dividend

ANY DIVIDEND IN ESCESS OF RE IS LIQUIDATING DIVIDEND

RE - up to zero
APIC - balance/plug
Cash

15

Property dividends

Revalue the property first

Land
Gain on land

Retained earnings
Dividends Payable

Dividends payable
Land

Net effect to RE and SE is the Cv of the land
Net effect to NI is the gain on revaluation. FV-CV

16

Stock split

adjust the par value and # of shares only
memo entrty

17

Quasi reorganization

adjust assets to reduced market values
adjust par value of stocks

Common stock - to reduce par value
APIC - plug
Assets
Retained earnings

18

Stockholder's equity presentation

PCANRAT

19

Treasury stock presentation

if cost method - last in SE
if par value method - contra equity account

20

Equity securities classified as debt securities

require shares to be sold back to the company upon termination of the agreement or death of the owner

there is an unconditional obligation for the corporation to redeem the shares at a specific date of occurrence of an event that is certain to occur - death

must be paid either in assets or variable amount of other equity securities

shares subject to mandatory redemption -

presented in the LIABILITY SECTION OF THE BS

**excluded in the EPS calculation:
mandatory redeemable PS
forward contracts to repurchase equity shares

21

RETIREMENT OF STOCK

DO NOT RECOGNIZE GAIN OR LOSS !!!

CS
APIC - CS
APIC - Retired stock (for loss)
Cash
APIC - Retired stock - for gain

NO GAIN RECOGNIZED IN RETIREMENT OF STOCKS!!!

PLUG IS ALWAYS APIC!!!

22

STOCK RIGHTS -to existing shareholders

At issuance: MEMO ENTRY ONLY
At lapse : NO ENTRY except when there is a provision that rights are paid by the entity if they are not exercised. Only then that an entry would be made:

Retained earnings
Cash

At exercise:

Cash
CS
APIC-cs

23

book value per share computation

total stockholders equity
- preferred stock balance
- preferred stock dividends including arrears
= common stock total book value
= NUMERATOR

total common shares issued
less: treasury # of shares
= common stock shares outstanding
= DENOMINATOR

COMMON STOCK BOOK VALUE /
# OF COMMON SHARES OUTSTANDING

if PS transactions are insignificant, ignore them

24

COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES FOR EPS

Stock splits and stock dividends
ALWAYS CONSIDER THEM ISSUED AT THE BEGINNING OF THE YEAR

25

PREFERRED STOCK CONVERSION TO COMMON STOCK

compute # of shares of common stocks issued upon conversion

PS
APIC - PS
CS-at par
APIC - CS - PLUG

NO RETAINED EARNINGS IN BOND PREFERRED STOCK CONVERSION !!!

QUICK ANSWER: at conversion, CS is issued at par value

26

If asked about total stockholder's equity balance, short cut way is to plus minus the total of the transactions that occurred during the year

example:

cs issued
treasury stocks acquired so on...

27

BOND CONVERSION TO COMMON STOCKS/PREFERRED STOCKS

APIC IS ALWAYS THE CREDIT PLUG
NO RETAINED EARNINGS HERE!!!

28

SOLD - MEANS

ISSUED SHARES