Acct 352 Test #4

Front 1

Debt Financing

Back 1

-Takes the form of notes, bonds, leases and other liabilities
-Creates creditors' interest in the assets of the business

Front 2

Equity Financing

Back 2

-Creates ownership interests in the assets of the business
-Owners of a corporation are its shareholders
-Shareholders' equity accounts represent the ownership interests of shareholders.

Front 3

Shareholders' Equity=

Back 3

Assets - Liabilities
(Net Assets)

Front 4

Shareholders' Equity is Created By:

Back 4

1. Amounts invested by shareholders- Paid in Capital
2. Amounts earned by the firm on behalf of its shareholders- Retained Earnings
3. Amount in Accumulated Other Comprehensive income

Front 5

Other Comprehensive Income

Back 5

-Total non-owner change in equity for a reporting period
-Reporting:
1. Created during the period:
a. an additional section of the IS
b. as part of the statement of SE
c. a separate statement / disclosure note
2. AOCI: Separate component of Shareholder's Equity

Front 6

Common Shareholders Rights

Back 6

1. Vote
2. Share in profits when dividends are declared
3. Share in the distribution of assets if the company is liquidated

Front 7

Preferred Shareholders Rights

Back 7

1. To a specified amount of dividends so that if the board declares dividends, they receive the designated dividend before any are paid to commons
2. Over common shareholders as to the distribution of assets in the event a corporation is dissolved

Front 8

Cumulative Preferred Shares

Back 8

Dividends that are not declared in any given year must be paid the next time dividends are paid before any can be paid to common shareholders.

Front 9

Not "Participating" Preferred Shares

Back 9

-Are entitled to no more than the designated dividend preference
-Share is not allowed to receive any additional dividends beyond the stated amounts

Front 10

Shares Sold for Cash:

Back 10

Cash (Shares x Price)
Common Stock (Shares x Par)
PIC- Excess of Par (Difference)

Front 11

Shares for Consideration Other than Cash

Back 11

The transaction should be recorded at the FV of either the shares OR the noncash consideration, whichever seems more clearly evident
(Conservatism)

Front 12

More than 1 Security Sold for a Single Price

Back 12

1. The cash received usually is the sum of the separate market values of the 2 securities.
2. If only one security's value is known, the 2nd security's MV is inferred from the total selling price
3. If the total selling price is not equal to the sum of the 2 market prices, the total selling price is allocated btwn the 2 securities in proportion to their relative MVs

Front 13

Share Issue Costs

Back 13

1. Reduce the net cash proceeds from selling the shares and thus PIC-Excess of Par
2. Share Issue Costs are NOT recorded separately

PIC-Excess of Par
Cash

Front 14

Retirement:Reacquired Shares at Gain

Back 14

Common Stock (Shares x Par)
PIC-Excess of Par
PIC-Share Repurchase (Difference)
Cash

Front 15

Treasury Stock: Reacquired Shares at Gain

Back 15

Treasury Stock
Cash

Front 16

Retirement: Reacquired Shares at Loss

Back 16

Common Stock (Shares x Par)
PIC-Excess of Par
PIC-Share Repurchase
Retained Earnings
Cash

Front 17

Treasury: Reacquired Shares at Loss

Back 17

Treasury Stock
Cash

Front 18

Retirement: Sold Shares at Gain

Back 18

Cash
Common Stock
PIC-Excess of Par

Front 19

Treasury: Sold Shares at Gain

Back 19

Cash
Treasury Stock (Cost)
PIC-Share Repurchase

Front 20

Retirement: Sold Shares at Loss

Back 20

Cash
Common Stock
PIC-Excess of Par

Front 21

Treasury: Sold Shares at Loss

Back 21

Cash
Retained Earnings
PIC-Share Repurchase
Treasury Stock (Cost)

Front 22

Retained Earnings

Back 22

-Represents a corporation's accumulated, undistributed or reinvested net income (or net loss)
-Distributions of earned assets are dividends
-A debit balance is a deficit

Front 23

Cash Dividends: Declaration Date

Back 23

Retained Earnings
Dividends Payable-Cash

Front 24

Cash Dividends: Payment Date

Back 24

Dividends Payable-Cash
Cash

Front 25

Non Cash Dividends: Declaration Date

Back 25

Investment/Equipment...
Gain on FMV
Retained Earnings
Dividends Payable-Property

Front 26

Non Cash Dividends: Payment Date

Back 26

Dividends Payable-Property
Investment/Equipment...

Front 27

Stock Distribution

Back 27

-A stock dividend affects neither the assets nor the liabilities of the firm
-Because each shareholder receives the same % increase in shares, each shareholder's % ownership remains same
-For a "small" stock dividend (25% or less), the FV of the add. shares distributed is transferred from retained earnings to PIC

Front 28

"Small" Stock Dividend:

Back 28

Retained Earnings (%xShares x MV)
Common Stock (%xShares x Par)
PIC-Excess of Par (To balance)

Front 29

Stock Split

Back 29

-A distribution of 25% or higher
-To reduce the market price per share
-If referred to as a "stock split", no entry is made
-If referred to as a "stock split effected in the form of a stock dividend", the par value of the add. shares is reclassified within shareholders' equity

Front 30

"Stock split effected in the form of a stock dividend"

Back 30

PIC-Excess of Par
Common Stock (%xShares x Par)

OR

Retained Earnings
Common Stock (%xShares x Par)

Front 31

Defined Contribution Pension Plans

Back 31

-Promise fixed annual contributions to a pension fund
-Employees choose where funds are invested, within set options
-Employee bears risk of uncertain investment returns
-Employer records pension expense = to cash contribution

Front 32

Defined Benefit Pension Plans

Back 32

-Fixed retirement benefits that are "defined " by a pension formula
-Employer is accountable for ensuring sufficient funds as promised benefits
-Riskier for employer

Front 33

Pension Obligation

Back 33

1. ABO- PV of estimated retirement benefits earned so far by employees, estimated by existing compensation levels
2. VBO- Vested portion of ABO
3. PBO- PV of estimated retirement benefits earned so far by employees, estimated by projected compensation levels

Front 34

Projected Benefit Obligation (PBO)

Back 34

1. % x Current Service Years x Final Year Salary
2. Retirement Benefits(#1) x [PVOA, n=Retirement Period, i=Interest Rate]
3. PV @ Retirement Date(#2) x [PV, n=Service Period Remaining, i=Interest Rate]
OR
Beginning PBO
+ Service Cost
+ Interest Cost
+ Loss(Gain) on PBO
- (Retiree Benefits Paid)
= Ending PBO

Front 35

PBO Can Change Due to...

Back 35

1. Service Cost- An increase in the PBO attributable to employee service performed during the year
2. Interest Cost- Interest accrues on its balance as time passes, creating interest
3. Prior Service Cost- When the pension formula is changed
4. Loss(Gain) on PBO- The periodic adjustments to PBO when estimates change
5. Retiree Benefits Paid- The benefits actually paid to retired employees

Front 36

Service Cost

Back 36

(% x 1 Year x Final Year Salary)
x [PVOA, n=Retirement Period, i=Interest Rate]
x [PV, n=Service Period Remaining, i=Interest Rate]

Front 37

Interest Cost

Back 37

Beginning PBO x Interest Rate

Front 38

Prior Service Cost

Back 38

PBO with Amendment
- PBO without Amendment
= Gain on PSC

Front 39

Loss(Gain) on PBO

Back 39

PBO with Revised Estimate
- PBO wihout Revised Estimate
= Loss(Gain) on PBO

If PBO with Revised Estimate>PBO without Revised Estimate, there is a Loss

If PBO with Revised Estimate<PBO without Revised Estimate, there is a Gain

Front 40

Plan Assets

Back 40

Beginning Plan Assets
+ Return on PA (Actual % x Beg. PA)
+ Cash Contributions
- (Retiree Benefits Paid)
= Ending Plan Assets

*Trustee accepts employer contribution, invests contributions, accumulates the earnings of investments, & pays benefits to retired employees

Front 41

Pension Expense

Back 41

Service Cost
+ Interest Cost
- (Expected Return on PA*)
+ Amort. of Prior Service Cost**
+ Amort. of Net Loss**
= Pension Expense

*Actual Return + Loss on Plan Assets=Expected Return
**Amortization is over average remaining service life

Front 42

Net Loss(Gain)-AOCI is "Too Large"

Back 42

>10% of Beg. Plan Assets or Beg. PBO (whichever is larger)

Net Loss(Gain)
- (10% of Plan Assets or PBO)
= Excess @ Beginning of Year
/ Average Remaining Service Period
= Amount Amortized in Current Year Pension Expense

Net Loss INCREASES Pension Expense
Net (Gain) DECREASES Pension Expense

Front 43

"Funded Status"

Back 43

LIABILITY if PBO>Plan Assets (Underfunded)
ASSET if PBO<Plan Assets (Overfunded)

Reported in Balance Sheet

Front 44

Gains(Losses) from Changing Assumptions Regarding PBO or Return on Assets being Higher/Lower Than Expected:

Back 44

Actual Plan Asset Return>Expected Return:
Plan Assets
Gain-OCI
Actual Plan Asset Return<Expected Return:
Loss-OCI
Plan Assets
Change in Assumption:
Loss-OCI
PBO
PBO
Gain-OCI

Front 45

Periodic Expense:

Back 45

Pension Expense
Plan Assets
PBO
Amort. of PSC-AOCI
Amort. of Net Loss-AOCI

Front 46

Periodic Funding:

Back 46

Plan Assets
Cash