Term
How does a stock split affect:
Stockholders' equity
# of shares outstanding
Par/stated value |
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Definition
Stockholders' equity: Does not change
# of shares outstanding: increases
Par/Stated value: decreases |
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Term
How do you record:
Common stock issued for an asset rather than cash |
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Definition
| Issue price is based on fair market value of asset, or market value of stock. |
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Term
How do you record:
Issuance of common stock with par value for cash |
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Definition
Debit Cash,
Credit Common Stock
Debit/Credit Paid in capital, depending on which is greater (cash or common stock) |
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Term
How do you record the resale of treasury stock using the cost method?
Assume that it is sold at a GAIN |
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Definition
Debit Cash (amount received)
Credit Treasury Stock (use cost to reacquire)
Credit Paid-in capital for difference
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Term
How do you record the resale of treasury stock using the cost method?
Assume that it is sold at a LOSS |
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Definition
Debit cash (amount received)
Credit Treasury Stock (at reacquisition price)
Debit Paid in capital (for any amount from a prior transaction to make the balance zero)
Debit Retained Earnings (for leftovers) |
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Term
How to record:
Acquiring treasury stock using the cost method |
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Definition
Debit Treasury Stock (at cost)
Credit Cash (at cost) |
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Term
How would you record:
a large stock dividend
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Definition
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Term
| What determines large stock dividend vs small? |
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Definition
Small = less that 20-25% of outstanding shares
Large = greater than 20-25% of outstanding shares
In between = use either method |
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Term
| Which accounts are affected by a treasury stock resale? |
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Definition
| Treasury stock, cash, PIC, Retained Earnings |
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Term
How to record:
Stock Subscription |
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Definition
Debit Common stock subscriptions receivable (for full amount)
Credit Common stock subscribed (up to par/stated value)
Credit Paid in captial for excess |
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Term
How to record:
Subscription once cash is received & stock is issued |
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Definition
When cash is received, debit cash, credit common stock subscriptions rec.
When stock is issued, debit common stock subscribed, credit common stock |
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Term
| Why could the number of shares issued be different from number of shares outstanding. |
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Definition
| because issued does not track it if it is repurchased as treasury stock |
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Term
| In regards to treasury stock, what is the difference between the cost method and the par value method of accounting |
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Definition
Cost method: credit Treasury Stock for its cost of acquisition
Par value method: record treasury stock at par value |
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Term
| How do stock dividends affect stockholders' equity? |
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Definition
| Do not change total stockholders' equity amount, but redistributes amounts (from Retained Earnings to contributed capital) |
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Term
| How do you calculate the number of shares used for diluted earnings per share when there are stock options? |
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Definition
Must first calculate the weighted average # of shares because of the stock issue during the year.
Then you must factor in the stock options for diluted EPS. |
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Term
How to calculate:
Diluted EPS when there are convertible bonds |
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Definition
| Do not have to calculate weighted average because common stock does not change during the year. |
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Term
How to calculate:
Diluted EPS when you have convertible preferred stock |
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Definition
| Do not have to calculate weighted average |
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Term
How to calculate:
Basic EPS when you have preferred dividends |
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Definition
| You do have to calculate weighted average because of an additional issue of stock |
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Term
| What must be reported on the face of the income statement as far as EPS |
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Definition
| Both basic and diluted must be reported |
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Term
| How do you handle dividends on cumulative preferred stock when computing basic EPS? |
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Definition
| Dividends should be deducted from net income regardless of whether the dividends were not paid or declared in the period. |
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Term
| What is the treasury stock method when we talk about diluted EPS? |
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Definition
| Used for options, warrants, and rights (all handled the same way) |
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Term
| How must dividends be treated when you're computing weighted average # of shares, stock splits, and stock dividends. |
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Definition
| Must be treated as if they happened on the first of the year |
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Term
| What goes in the denominator of diluted EPS? |
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Definition
| Diluted EPS after options, bonds, and preferred stock |
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Term
| How do you know if stock options, warrants, and rights are going to be dilutive? |
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Definition
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Term
| What does basic EPS represent? (Who are we calculating basic EPS for?) |
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Definition
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Term
| How do convertible bonds affect diluted EPS calculations? |
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Definition
| Used to calculate increase in net income in the short cut test for bonds |
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Term
| How would preferred stock affect diluted EPS? |
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Definition
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