Stockholders' Equity II Flashcards Preview

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Flashcards in Stockholders' Equity II Deck (20)
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1
Q

WHAT happens when dividends are declared as a distributed property dividend and the merchandise’s carrying amount is in excess of its market value?

A

THERE is a Loss

The Loss is reported as a reduction to income from continuing operations

2
Q

HOW are stock options that have a grant date recognized?

A

USING their Fair Value

  • with the grant date ($ - Amount) recognized evenly over the vesting period (i.e. 3-years, 5-years, etc.)
3
Q

WHAT are Dividend Distributions that are NOT paid out of earnings considered?

A

Liquidating Dividends

They reduce Additional paid-in capital (APIC), NOT retained earnings

4
Q

WHAT happens when the collectability is reasonably assured for a common stock subscription?

A

A Receivable for the remaining subscription price is recorded immediately as a debit along with cash received

Credit: (1) Common stock subscribed and (2) Additional paid-in capital

5
Q

True or False.

Dividends on cumulative preferred stock are discretionary and retained earnings would be appropriated for dividends in arrears

A

False.

Dividends on cumulative preferred stock are discretionary and retained earnings would NOT be appropriated for dividends in arrears

6
Q

True or False.

The Declaration of a Stock Dividend decreases the number of common stock outstanding.

A

FALSE.

The Declaration of a Stock Dividend increases the number of common stock outstanding.

7
Q

Are gains and losses reported when accounting for bond conversions with the book value method?

A

NO.

No gain or loss is recorded on the transaction

e.g. outstanding convertible bonds with a face value of $1,000,000 and an unamortized discount of $300,000 – Your stockholders’ equity increase would be $700,000

8
Q

WHAT is a “liquidating dividend?”

A

ANY dividend paid in an amount that is in excess of retained earnings

IT would be recorded as:
A decrease to Additional Paid-in Capital (APIC) rather than retained earnings

9
Q

True or False.

A Stock Dividend increases the number of shares outstanding, and has a significant monetary effect on Stockholders’ Equity.

A

FALSE.

A stock dividend increases the number of shares outstanding, but has NO monetary effect on any component of stockholders’ equity

10
Q

WHAT is a “noncontrolling” interest in a subsidiary considered and WHERE would it show up on the Balance Sheet?

A

AS a component of stockholders’ equity

IT is required to be reported in the stockholders’ equity section of the balance sheet

11
Q

True or False.

Shares “Issued” and Shares “Outstanding” are the same.

A

FALSE.

Shares “Issued” are the Shares without factoring those that are “Treasury” Stock.

Shares “Outstanding” are the Shares when you are factoring the “Treasury” Stock.

12
Q

True or False.

Retained Earnings appropriation can restrict earnings available for dividends.

A

TRUE.

WHY? - Because this is a means of communicating to financial statement users that the company is anticipating a need that will prevent the distribution of dividends

13
Q

AT What Date is a liability for a property dividend recorded?

A

AT the declaration date

NOTE: Since the gain or loss on the property is ultimately closed into retained earnings, the net effect on retained earnings will be the cost of the property

14
Q

FOR compensatory stock options, WHEN are compensation expenses recognized?

A

IN the period or periods in which the services are rendered

E.g. Stock options granted in June 20X1, but services are “rendered” in 20X2, 20X3, and 20X4 – You would recognize the expense in those three years of “rendered” services

15
Q

WHAT Balance Sheet (B/S) carrying amount is used when a company goes through a “quasi-reorganization?”

A

THE Fair Value

i.e. ANY deficit in retained earnings is eliminated and assets that are overstated are written down to their fair values

16
Q

True or False.

Current liabilities are affected by both the declaration and distribution of a stock dividend

A

FALSE.

Current liabilities are affected by neither the declaration nor the distribution of a stock dividend.

i.e. At the time that a stock dividend is declared, the Retained Earnings account is reduced and a separate stockholders’ equity account, such as “stock dividends distributable” is increased

17
Q

True or False.

The issuance of stock rights to shareholders reduces retained earnings.

A

FALSE.

The issuance of stock rights to shareholders does not reduce retained earnings.

i.e. It is recorded for disclosure purposes but no assets, liabilities, or equity accounts are affected.

18
Q

WHEN should a stock options outstanding account be reduced if the compensatory stock option plan has different grant, measurement, and exercise dates?

A

AT the Exercise Date

19
Q

WHAT methods may Treasury stock be accounted for under IFRS?

A

(1) Cost method
(2) Par value method
(3) Constructive Retirement method

20
Q

WHAT happens when stock, common or preferred, are retired for an amount less than its par value?

A

THE difference is recognized as a credit to additional paid-in capital