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)