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43 Cards in this Set
- Front
- Back
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What are the 2 methods for dealing with the contribution of unidentifiable assets in the formation of a partnership?
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Bonus Method
Goodwill Method |
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In a partnership, how are assets & liab originally recorded?
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Assets - FV
Liab - PV's |
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Give two examples of unidentifiable assets.
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1. Mangmnt Expertise
2. Personal Business Reputation |
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What does RUPA stand for?
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Revised Uniform Partnership Act
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Explain the Par Value Method for Treasury Stock.
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The Par Value Method views the purch & subsequent disposition as 2 diff transactions.
Acquisition of the shares is viewed as a constructive retirement of the stock. Treasury stock is recorded at PAR. |
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What are 3 things to remember with Treasury Stock under the PAR Value Method.
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1. If the acquisition cost of the TS is less than the price the stk was originally issued the difference is credited to APIC from TS.
2. If TS is more than the original, debit APIC from TS, ONLY to extent of any existing balance, excess is debited to RE. 3. The reissuance of TS under the Par Value Method is accted for in the same manner as an org stk issuance. However, any reissuance of TS at less than par value, debit APIC - from TS until that balance is exhausted, debit RE for any excess. |
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What are the 2 types of Stock Option Plans?
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1. Compensatory
2. Noncompensatory |
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What's the three criteria under SFAS 123 to classify a stk option plan as a noncompensatory plan?
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1 The plan contains no options features except that employees may be permitted to enroll in the plan during a short period, no more than 31 days after purch price has been established.
2 The discount rules (5%) 3 Substantially all full-time employees that meet limited employment qualifications may participate on an equitable basis. |
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Explain the cost method for Treasury Stock.
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The cost method views the purchase & subsequent disposition of stock as one transaction.
1. Reissued in Excess of Acquisition Cost - excess is credited to an appropriately titled PIC acct. 2. Reissued at less than acquisition cost - the deficit is 1st charged to any existing balance in the additional PIC from TS trans acct then remaining against RE. 3. B/S presentation - Presented on the B/S as an unallocated reduction of total stkholders equity (i.e.) contributed capital & RE. |
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Explain retirement of Treasury Stk.
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A corp may decide to retire some or all of its TS. Retired stk is classified as authorized & unissued (like it never had been issued). Accting for the retirement of TS depends on the method used initially to record it.
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What's the four criteria under APB 25 to classify a stk option plan as a noncompensatory plan?
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1. Substantially all full-time employees may participate.
2. Stk is offered to employees equally or based on a uniform percentage of salary. 3. The time permitted for exercise is limited to a reasonable period. 4. The disc from mkt price of the stk is no greater than would be reasonable in an offer to stkholders or others. |
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What's the Black-Scholes pricing model used in a stock option compensatory plan?
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D - dividends expected on stk
E - exercise price V - volatility of the stk I - int rate (risk free rate)for the expected term of the option L - life of the option S - stock current price |
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Define Dividends!
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Dividends represent the distribution to stockholders of a proportionate share of RE or as in the case of a liquidating dividend, a return of capital. Dividends (except stk dividends) reduce stkholders equity through the distribution of assets or the incurrence of a liability.
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How are property dividends recorded?
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At the date of declaration, property dividends are recorded at the FV of assets given up & any difference btw FV & carrying amount of the asset is recorded as a G or L as a component of income from continuing operations.
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What's a stk dividend?
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Issuance by a corporation of it's own common shares to it's common shareholders in proportion to their existing holdings.
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What is treasury stock?
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Treasury Stk is the corporations common or preferred stock that has been reacquired by purchase, by settlement of an obligation to the corporation, or through donation.
Acquisition of treasury stock reduces assets & total stkholders equity (unless donated) while the reissuance of treasury stock increases assets & total stkholders equity. |
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What are two methods to account for Treasury Stock?
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Cost Method
Par Value Method |
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Explain Stock Splits!
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They increase the number of shares outstanding & proportionally decreases the par or stated value of the stock. There is no change in the dollar amount of capital stock, additional PIC, RE or total stockholders equity.
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What is a liquidating dividend?
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Distributions in excess of retained earnings and, therefore, represent a return of investment rather than a share in profits.
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There are 3 significant dates that have to do with dividends. What are they?
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1. Declaration - date that the dividends are formally declared by the BOD & the declared dividends (except stk dividends) become a liability.
2. Record - the date of record is the date used to establish those stkholders who will receive the declared dividends. No JE is req'd unless the # of shares outstanding have changed from the date of declaration. 3. Payment - The distribution of assets is made on the date of pymt. |
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There is essentially only 2 things that can increase RE. What are they?
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Net inc & Prior Period Adj
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What are the 3 steps involved in a quasi-reorganization?
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1. Assets are revalued at NRV, but there is no net asset increase. (any loss on revaluation increases the deficit).
2. A minimum of the amount of the adjusted deficit must be available in PIC. This might be created by donation of stock from shareholders or reduction of the par value. 3. The deficit is charged against PIC and thus is eliminated. |
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What are the 4 things that Retained Earnings should not include?
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1. Gains from treasury stk transactions.
2. Gifts of property 3. Additions to owners equity attributable to reappraisals of property 4. Accumulated balance of OCI |
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There are about six things that can decrease Retained Earnings. What are they?
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1. Dividends
2. Net Losses 3. Treasury Stk Transactions 4. Certain Stk Splits 5. Prior Period Adj 6. Certain special changes in accting principle |
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What's a Quasi-Reorganization?
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A reorg or revision of the capital structure. This procedure eliminates an accumulated deficit as if the company had been legally reorganized without much of the cost & difficulty of a legal reorganization. Thus, the corp will be able to pay dividends again.
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What is appropriated Retained Earnings?
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The portion unavailable for dividends. Some reasons for appropriation are to create a reserve for plant expansion, to satisfy legal requirements of a bond indenture or to provide a cushion for expected future losses.
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What are the 2 allocation methods in a lump-sum purchase price?
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1. Proportional Method - Allocation of the lump sum btw the classes of stock in accordance with their relative FV's.
2. Incremental Method - Allocation of the lump sum based on the known FV of one security with the remainder of the lump sum being allocated to the other security. |
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What is the entry for when stock rights are exercised?
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Debit: Cash
(number of shares x exercise price) Credit: Common Stk (shares x par/stated value) Credit: APIC (balance) |
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How are the Assets & Liab recorded in a Going Concern Incorporation?
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The assets are recorded at FV's current liab assumed generally are recorded at face amount & LT Liab at their V.
The issued stock is recorded at par or stated value. Any excess of net assets acquired over par or stated value of the capital stock is credited to APIC. |
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How do you record stock issued for property other than cash?
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The property received & the amount of contributed capital should be recorded at the FV of the property received or the mkt value of the stk, whichever is clearer.
Assets (FV) Common Stk (Par/Stated) PIC - Common Stk (bal) |
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What would the JE be for stk issuance of 500 shares of $10 par value common stk is sold for $30 a share?
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Cash (500 x $30)
Common Stk (500 x $10) APIC - Comm Stk (bal) |
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What happens when stock rights are issued?
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No entry is req'd, just a memo entry.
Common Stock & additional PIC increases when stk rights are exercised. RE is not affected when stk rights are exercised. |
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What 4 things require disclosure in f/s?
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1. Rights & Privileges of Securities Outstanding ex: dividend & liquidation preferences, participation rights, call prices & dates, conversion or exercise prices or rates & pertinent dates.
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What's a lump-sum purchase price?
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When a corporation sells two or more classes of stk for a lump sum, the proceeds are allocated among several classes of stock by one of two methods.
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What's a subscription?
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A contract to purchase one or more shares of stk in the future. Usually, shares of stk are not issued until the full subscription price is paid.
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What are the 3 main components of a corp's equity?
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1. Contributed capital which includes capital stk & APIC.
2. Retained Earnings 3. OCI |
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What is legal capital?
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The portion of contributed capital req'd by statute to be retained in the business for protection of creditor's.
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What are 3 features of Preferred Stock?
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1. Redeemable - Shareholders may redeem shares, at their option, at a specified price per share.
2. Convertible - may exchange for common stk. 3. Callable - Corp may purchase the preferred stk back to cancel it. |
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What are stock rights?
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Represent privileges extended by corporations to acquire additional shares of capital stock under prescribed within a stated time period.
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What are the 4 main OCI classes?
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1. Foreign Currency Items
2. Pension Adjustments 3. Unrealized G & L's on certain investments in debt securities & equity securities. 4. G & L's on certain hedging activities. |
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What is contributed capital?
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The injections of capital by stockholders.
a. Cap Stk - the par or stated value of the stk purchased by owners b. APIC - PIC in excess of par or stated value |
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What are the 3 capital stk values?
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1. Par Value - Stk with a specified par value per share printed on the certificate.
2. No-Par Value 3. No-Par with stated value |
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What are the 5 types of preferred stock dividends?
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1. Cumulative
2. Noncumulative 3. Fully Participating 4. Partially Participating 5. Non Participating |
