FAR 15 - Stockholder's Equity

8 percent cumulative preferred stock means that the dividends received is 8 percent of the par value. Liquidation value is the amount that has to be paid to you if the company liquidates.

A stock subscription is someone who is promising to buy a certain amount of shares for a certain price in the future.

Cumulative means dividends accumulate in arrears. Arrears are paid first then the current dividend.

Net treasury shares under par value are contra common stock. Treasury stock accounted for under the cost method is a contra equity.

Stock options are measured on the grant date.

Stock options goes to employee. Stock right goes to a stockholder. Stock warrants goes to bondholders. All three types allows the holder to purchase shares of stock.

Stock rights, or preemptive rights, allow existing owners to preserve their ownership percentage. It is to prevent dilution by allowing them to purchase before the issuance .

Accounting for treasury stock under the par value assumes that you intend to hold the shares indefinitely.

All dividends except for stock dividend and stock splits reduce stockholder's equity.

Authorized shares is the legally amount of shares you can distributed. Issued is how many has been issued. Outstanding is authorized, issued and still in the shareholder's hand.

Estimated forfeited amount records the net amount. Actual forfeited amounts records the gross amount, then reduces it by the net method with amortization.

When calculating the repurchase of common stock, keep track of the additional paid in capital per common stock that was entered when you first sold, or issued, the stock. Under the par method, you will need to know this, and you will need to know this when you retire the stock.

When you calculate earnings per share, you calculate it based on weighted average of shares outstanding.

When you retire a stock, that means it is no longer issued or outstanding.

When you retire stocks under the cost method, you will hit the accounts that were used in the original issuance, such as Cash, Common Stock, and Additional Paid in Capital Common Stock.

When you retire under the par value method, debit common stock at par, credit treasury stock at par.

Treasury stock accounted for under the cost method is a contra-equity account.

Under the cost method, when you purchase back treasury shares, it is a debit to Treasury Stock and a credit to Cash for the cost amount.

When accounting for treasury stock under the cost method, think of cost in, cost out, until retirement.

When accounting for treasury stock under the par value method, think of the legal method, and par in and par out.

What is the presentation order of the Stockholder's Equity Section?

1. Preferred Stock 2. Common Stock 3. APIC 4. Noncontrolling Interest in S 5. Retained Earnings 6. Accumulated OCI 7. Treasury stock, if reported under the cost method

Cliff vesting recognizes 100 percent after X amount of years working. Graded vesting says employees are 20 percent vested after three years and become 20 percent vested each year after until 100 percent vested.

Declaration date is the day the Board commits to the dividend. The company records a liability on the declaration date. Record date is the date that shows who will receive a dividend. Shareholders at the record date are identified as the ones entitles to the dividend. Payment date is when the distribution is made.

Different types of dividends include property recorded at fair market value, scrip which is an interest bearing note payable, liquidating which is a return of capital, small or large stock, if small it is at fair market value, if it is large it is at par, and a stock split.

Expected Compensation Method: Company issued 100,000 options that vest over 3 years. Company expects turnover to be 2% each year. So each year, we can expect 2% to be forfeited. After calculating for forfeitures, the company expects that 94,119 options will be exercised. On the date of the grant, book a debit to Deferred Compensation and a credit to APIC - Stock Options Outstanding, for 94,119 times the fair value of each option. Each year, debit compensation expense and credit deferred compensation. APIC stays in equity until it is exercised. When it is exercised, debit cash, debit APIC, and credit common stock and credit APIC Common Stock.

For quasi reorganization, credit retained earnings until zero. Write down any assets overvalued. Take the difference out of common stock, and plug additional paid in capital.

If multiple securities are issued, stocks and bonds, the relative fair market value method should be used.

If multiple securities are issued, such as stocks and bonds, the relative fair market value method should be used.

If stock options can be exercised on date of grant, hit compensation expense and credit APIC Stock Options for the total amount. If stock options are not immediately exercised, hit deferred comp and credit APIC Stock Options for the amount of years it is vested for.

If the stock is issued in exchange for property other than cash, the property is recorded at fair market value.

If you give property, which includes stocks in another company, it is recorded at fair market value at the declaration date. If you declare $25 worth of dividend, and your property is $20, you have a gain of $5. The net effect on stockholder's equity is $20 because the dividend reduces it by $25, then your gain increases it by $5.

If you issue stock for less than par value, is called Watered stock, and you could be liable for that difference. Par value is generally really small to prevent watered down stock, and no further additional liability.

Define a stock subscription

It is a commitment to purchase a stock, that usually requires a down payment.

Large stock dividend is greater than 20 or 25 percent. Reduce retained earnings and common stock for par value.

Liquidating Dividend - occurs when you less retained earnings that the dividend amount that was declared. If so, the difference will be a debit to APIC, to reduce the capital. The person receiving the liquidating dividend would have a reduction to their investment because it is a return of capital dividend.

Non compensatory stock options do not involve recognition of compensation expense. It must meet one of two conditions: the terms are comparable and no more favorable to terms offered to existing shareholders or any purchase discount below fair value at issuance is no greater than the costs that would have been incurred in a public offering of the securities, more or less 5 percent. If non compensatory, no journal entry is until it is exercised.

Noncontrolling interest arises when a reporting entity prepares consolidated financial statements that include a subsidiary in which the parent owns less than 100%. The oncontrolling interest represents the minority portion not owned.

On the date of declaration, debit retained earnings and credit dividend payable. Date of distribution is when you record a credit to cash.

What is the difference between Par and the Stated Value?

Par is found in the certificate of incorporation and the stated value is set by the board of directors. In a question, if you don't know par, use stated.

Preferred shares received dividends and liquidation first before payment to common stock.

Property dividends in which the property has a fair market value greater than the carrying value would be a gain.

Property dividends in which the property is less than the fair market value would result in a loss. Assuming that the property is merchandise, the loss would be a reduction in income from continuing operations.

Quasi-reorganization is when you have a retained earnings deficit and you want to clean up the books because you have overvalued assets. Book an entry to retained earnings to bring it to zero, write down assets, reduce par value of stock, and plug to additional paid in capital.

Repurchase of shares under the par value method would be a debit to treasury stock for the par value and common stock additional paid in capital for the amount that it was entered into. Refer to the original issuance. Credit cash for amount, and plug additional paid in capital treasury stock if it is a credit. If it is a debit plug, debit additional paid in capital treasury stock until it is a zero balance, then hit retained earnings.

Retained Earnings represents the accumulated earnings since the inception of the company that have not been paid out to shareholders in the form of a dividend.

Share based payments classified as equity is measured on the grant date. If value of stock is not readily determinable, an option pricing model may be used, or the intrinsic value. The intrinsic value says if the option price is lower than market value, there is value. The difference is the intrinsic value.

Share based transaction with employees is measured at fair value. Cost of services received from employees in a share based transaction will be fair value of equity instrument issued or fair value of liabilities incurred, whichever is more reliable.

Share based transaction with non employees will be measured at fair value of goods received or instruments exchanged, whichever information is the more reliable.

Shares authorized are the max numbers you can legally distribute. Shares issued are shares issued. Shares outstanding is stock that is authorized, issued, and still in the share of the hands of the shareholder.Treasury stock is authorized and issued, but not outstanding.

Small Stock Dividend is below 20 to 25 percent. Reduce retained earnings, credit common stock for par, and the difference is additional paid in capital.

The entity must make an accounting policy election as to how to measure the total amount of compensation, which is based on the number of options that are expected to vest and become exercised. The two methods include the estimating the number of options expected to be forfeited or to account for forfeitures when they occur. Total compensation expense is obtained by Multiplying the amount by the fair value per option and recognize it over the amount of years it is vested.

The excess of cash received for the par value of stock goes to additional paid in capital.

The issuance of common stock should be recorded as a credit to common stock for par value. Par value represents the minimum legal liability. If you don't know PAR, use Stated Value.

The person receiving a stock dividend has no journal entry. You just need to keep track of the decrease/increase in carrying value.

The person receiving a stock dividend has no journal entry. The person receiving a stock dividend has no journal entry. You just need to keep track of the decrease/increase in carrying value.

There are 7 categories in the Stockholder's Equity portion of the Balance Sheet: 1) Preferred Stock 2) Common Stock 3) Additional Paid in Capital 4) Noncontrolling interest 5) Retained Earnings 6) Accumulated other comprehensive income 7) Treasury Stock, at cost

There are two methods of accounting for treasury stock: Cost method and the Par Value Method.

There are two ways to account for treasury stock. The first is the cost method, the second is the par value method, also known as the legal or stated value method.

To appropriate retained earnings, reduce retained earnings, and credit retained earnings appropriated for whatever you need.

To retire a stock under the cost method, debit the common stock for par value and the common stock additional paid in capital for the original issuance cost price. Then credit the treasury stock for the cost price that it was purchased for and plug the treasury stock additional paid in capital. If there is a debit plug, debit treasury stock additional paid in capital until zero balance, then debit to retained earnings.

Treasury stock accounts for under the par value method is a contra common stock account.

Under cost and par method, the issuance entry is the same. Debit cash, credit common stock for par, and credit additional paid in capital - common stock, for the difference.

Under cost method, repurchase of shares is a debit to treasury stock and credit to cash for cost. When you resell the treasury stock, debit cash, credit treasury stock for the cost it was repurchased and plug a credit to additional paid in capital treasury stock. If it is a debit plug, hit APIC Treasury stock until it is zero, then hit retained earnings. Under the cost method, the plug is to APIC Treasury Stock, not APIC Common Stock. When you retire, debit common stock for par, additional paid in capital common stock for par, and credit treasury stock for cost, and plug a credit or debit to APIC Treasury Stock or Retained Earnings.

Under the actual forfeited method of accounting for stock options, each year recognize the expense if it is vested. Recognize all expense and credit APIC Stock Options Outstanding if it is not vested.

Under the actual forfeited method, when options are actually forfeited, debit APIC Stock Options Outstanding for the original issuance amount, also known as the fair value price. Reduce, or credit ,compensation expense for the percentage that relates to year 1. Plug a credit to Deferred Compensation to reduce the amount. This entry reduces deferred compensation because some options were forfeited. IN the second year, the amount recognized as compensation expense is equal to remaining deferred compensation balance times the remaining vested life.

Under the cost method, when you resell shares, it would be a debit to cash received, a credit to Treasury Stock for the cost you originally purchased it for, then a debit or credit plug. If it is a credit plug, it will be to Additional Paid in Capital, Treasury Stock. If it is a debit plug, first you hit APIC Treasury Stock until it becomes zero, then it is a debit to retained earnings.

Under the cost method, you don't touch the issuance entry until you retire it.

Under the cost method, your intention is to resell it. Under the par value method, your intention is to hold it indefinitely.

Under the estimated forfeiture method, when options are exercised, debit cash for amount received, debit APIC Stock Options for original entry amount per option, credit common stock for par, credit APIC Common Stock for difference.

Under the par value method, repurchasing is a debit to APIC Common Stock for the original entry. For example, if $20 a share went to APIC Common Stock in the original issuance, your credit here would be $20 a share. Then debit treasury stock for par value, debit cash, and plug a credit or debit to APIC Treasury Stock, or retained earnings. Reselling shares is treated like a new issuance. Retiring shares is a debit to common stock and a credit to treasury stock for par value.

Under the par value method, the excess selling price over the par value goes to additional paid in capital common stock, not APIC Treasury Stock. You only hit APIC Treasury Stock when you repurchase shares and you have to plug a balance.

Under the par value method, treasury stock is considered a contra common stock account and under the cost method, treasury stock is considered a contra equity account.

Under the par value method, treat it like a new issuance. Debit cash, credit treasury stock for par value, and credit additional paid in capital common stock for the difference.

Under the par value method, you have to debit additional paid in capital common stock at the amount it was issued for.

Under the second method, actual forfeited method, record deferred compensation at the gross amount. Total options issued times the fair value.

FAR 15 - Stockholder's Equity

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