What happens if a stock subscription is defaulted?
company can either return the money, keep it, or hold to cover any losses on resale and then return the balance
When stock is issued with other securities for a lump sum, how is the proportional method calculated?
Find proportion of total FV of all securities and multiply by lump sum
Define Treasury stock
a firm's own stock repurchased on the open market
- not an asset (owning shares of itself!) serves as reduction of stockholders equity
What does dividends in arrears mean? how is it calculated? how is it reported?
1. unpaid dividends from prior years owed to preferred stockholders
2. calculate amount owed preferred stockholders (% given x total par value) for each year unpaid and subtract by dividends paid
3. as a disclosure
When is a stock subscription considered issued stock? journal entry?
1. When the total subscription price is received
2. Debit: Cash, Credit: Subscription receivable (clear balance)
Debit: Common stock subscribed, Credit: Common stock (at par to show stock is now issued)
What is the purpose for the Reserve for RE (or Appropriated RE) account?
restricts RE to show that assets in the amount of the appropriation are not available for dividends
Debit- RE
Credit- Reserve for RE
Reverse when reserve no longer needed
What is a stock appreciation right?
share based payment classified as a liability- allows employees to receive stock or cash equal to the difference between the MV and some predetermined amount per share for a certain amount of shares
What are the accounting entries for share-based payments classified as equity?
At grant date
Db- Deferred compensation expense
Cd- Stock options outstanding
Amortization (straight-line)
Db- Compensation expense
Cd- Def Comp exp.
Option exercised
Debit- Cash (option price), Stock options outstanding
Credit- CS (par), Addtl PI
When are share-based payments, classified as equity, measured? How? How is compensation expense allocated?
1 Grant date FV equity instrument
2 Observable market price op option with similar terms or estimate with pricing model or intrinsic value (market value stock- $ employee pay). All net of amount employee pays
3 straight line over requisite service perio
How is the amount of a dividend distributed between preferred and common share holders? Assume preferred fully participates in dividends
take preferred % amount and multiply by total par value for common and preferred stocks outstanding. this gives the amount for only preferred. Subtract it from total dividend, allocate remaining based on proportion of total par values for preferred/common
