CPA FAR: Stockholders' Equity
what are some examples of additional paid in capital (APIC) types
- common stock - preferred stock - retired stock - treasury stock - warrants - stock options - deferred compensation
What are the 7 major items in Stockholders' Equity
1. Preferred Stock 2. Common Stock (net treasury shares under par value method) 3. Additional paid-in capital 4. Noncontrolling interest in "S" 5. Retained earnings 6. Accumulated other comprehensive income (DENT) 7. Treasury stock (only if using cost value method)
IFRS - what are the 3 methods for handling treasury stock
1. cost method 2. par value method 3. constructive retirement method
how many days before the record date is the ex-dividend date
2 days stock purchases take 3 days to settle, so in order to be eligible for the dividend, the stock must be purchased at least 3 days prior to the record date
what 7 items are presented within stockholders equity and in which order
ASC 205 1. preferred stock 2. Common stock 3. Additional paid-in capital 4. Noncontrolling interest (minority interest) 5. Retained earnings 6. Accumulated other comprehensive income 7. Treasury stock, at cost
when must equity securities be reclassified as a debt
ASC 480 (SFAS 150) both of the following conditions must exist 1. there is an unconditional obligation for the corporation to redeem the shares either at a specific date or upon the occurrence of an event that is certain to occur (usually the death of an owner) 2. The redemption must be paid either in assets of the corporation or a variable amount of other equity securities of the corporation. If it will be paid in other equity, the number of shares issued must be an attempt to approximate a fixed dollar amount of the value of some asset other than the equities securities being issued to replace the redeemed securities
what is a quasi-reorganization (fresh start)
ASC 852 when a company has had multiple years of losses and has negative retained earnings (debit balance). They want to have a fresh start without going through bankruptcy or other messy processes. The quasi reorganization wipes out the negative retained earnings and starts again at 0
for a quasi-reorganization (fresh start), what account is hit to offset the negative retained earnings
Additional paid in capital (APIC)
what are 2 option valuation models
Black-Scholes model Binomial Distribution model (recently preferred by FASB)
what accounts are hit when stock options are granted
DR APIC-Deferred compensation CR APIC-Stock options outstanding
what accounts are hit when the employee stock options expire without being exercised
DR APIC-Stock options CR APIC-Expired stock options
What accounts are hit when an employee exercises a stock option
DR Cash DR APIC-Stock options outstanding CR Common stock CR APIC-C/S
what accounts are hit when the stock options are expensed over time
DR Compensation expense CR APIC -Deferred compensation
IFRS - what is different about OCI under IFRS vs GAAP
IFRS OCI is [DENT-R] same as GAAP but also has Revaluation changes
at what value are stock options valued at when they are compensatory and at what date are they valued
SFAS 123R (ASC 718/505) the fair value of the option on the grant date. The grant date is the date the stock options are issued
what is reduced in addition to retained earnings when a liquidating dividend is declared
additional paid in capital (APIC)
what is a stock subscription
an agreement for a shareholder to buy a certain number of shares when new offers are available. Usually a down payment is made
what does appropriated retained earnings mean
appropriated retained earnings mean that the money has been set aside and cannot be used for dividends (example: set aside for plant expansion)
IFRS - what method is used when preferred shares are converted into ordinary shares
book value method
examples of types of dividends
cash property (FMV at date of declaration) scrip (interest bearing note payable) liquidating (return of capital) stock (small = FMV, large = par) stock split
what are the 2 types of vesting for stock options
cliff vesting (100% vests at once or 100% after X years) graded vesting schedule (vests over time)
what does compensatory mean (stock options) and what does it imply for accounting methodology
compensatory means it is part of the employees compensation (pay for work) and there is an immediate measurable benefit. It implies the options should be an expense for the company
what treasury stock method is used if the company plans to resell the shares
cost method
which treasury stock method is considered a contra equity account
cost method
what are the 2 methods for treasury stock
cost method par value method (legal/stated value method)
what is the term used for the date the board of directors commits to a dividend
declaration date
what are the 3 important dates for dividends
declaration date record date payment date (ex-dividend date good to know but not in book for some reason)
preferred shares: define cumulative
dividends missed in earlier years must also be paid before the common shareholders receive anything
what is the date where if stock was bought on that day or any day after, the buyer would not be eligible for the dividend
ex-dividend date
preferred shares: define participating
if the common shareholders get a dividend that is a higher rate on its par value than the stated rate on the preferred shares, the preferred shareholders must get the same higher rate
what is treasury stock
issued stock that has been repurchased and held in the company's treasury
for stock dividends, is the max percent (range) that a stock dividend can be accounted for as a small dividend
must be < 20% - 25% one of the few areas of accounting with an overlapping range
for stock dividends, is the min percent (range) that a stock dividend can be accounted for as a large dividend
must be > 20% - 25% one of the few areas of accounting with an overlapping range
if a cumulative dividend is not paid but still owed, should it be listed as a liability?
no because dividends are only liabilities after they are declared. It should be tracked though
on what date are dividends recorded on the books as a liability
on the declaration date
what treasury stock method is used if the company plans to hold them for a long time
par value method
which treasury stock method is considered a contra common stock account
par value method
what is the date that the dividend distribution is made to shareholders on record
payment date
what is the difference between common and preferred stock
preferred stock typically pays a consistent and higher dividend that takes priority over common stock dividends. Preferred stock is something of a hybrid between debt like bonds and common stock
at what amount are property dividends valued at and what date is used
property dividends are valued at the FMV on the declaration date
what is the term used for the date the shareholders are identified as the ones to receive the dividend
record date
if multiple securities are issued for a fixed dollar amount, how do you distribute the amount between the securities
relative fair value method
what is reported on statement of retained earnings
retained earnings beginning +/- prior period adjustments = retained earnings beginning - adjusted + net income - dividends = retained earnings ending
IFRS - what is the term used that under GAAP is called additional paid in capital
share premium
what 2 types of dividends have no effect on stockholders' equity
stock dividends stock splits
preferred shares: define callable
the corporation has the option of repurchasing the preferred stock at a specified price
preferred shares: define convertible
the preferred shareholder has the option of converting their stock for common stock at the specified ratio
preferred shares: what do warrants attached to preferred stock allow the holder to do
the warrants are convertible into shares of common stock
what is a stock appreciation right (SAR)
they 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 certain number of shares
IFRS - explain the constructive retirement method for treasury stock
this is done when management does not intend to reissue the shares and wants to retire them. Instead of increasing the treasury stock account, they will just hit the common stock account (reduces common stock)
what is the JE for the company or person receiving a stock dividend
trick question. no journal entry
how is the par value of common stock determined
usually stated in the company's certificate of incorporation, otherwise it is stated by the Board of directors
what is a liquidating dividend
when a dividend is declared that exceeds retained earnings
what is a stock split
when the available number of shares is increased (decreased) and the stock price is decreased (increased) proportionately. example: 2 for 1 stock split on a $100 stock. If you owned 10 0shares at $100, after the split you would own 200 shares at $50. The total value of the stock does not change
at what time do you hit APIC for stock subscriptions: when the subscription is ordered or when the full amount of cash has been received and stock issued
when the subscription has been ordered (taken out)