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Notecards I made from Wiley's 2012 CPA Exam Review

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Question
Answer
If preferred stock is issued, what does the participating feature mean? cumulative?   show
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show 1. stockholders have option of exchanging preferred stock for common stock at a specified ratio 2. entity has option to repurchase stock at a specified price  
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Do redeemable preferred stock have to be classified on the balance sheet?   show
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show Debit: Cash (amount received), subscription receivable (balance) Credit: common stock subscribed (par), paid-in capital in excess of par (subscription price > par)  
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show 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)  
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show company can either return the money, keep it, or hold to cover any losses on resale and then return the balance  
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show Market value for the stock - Par  
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When stock is issued with other securities for a lump sum, when is the incremental method used? (as opposed to the proportional method) How allocate and Where would additional paid in capital be allocated if there is any?   show
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When stock is issued with other securities for a lump sum, how is the proportional method calculated?   show
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show 1. the relative FV of stock and warrants 2. use FV of known amount and remaining is allocated to the remaining security (usually resulting in additional paid in capital allocated to that security)  
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Define Par   show
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show a firm's own stock repurchased on the open market - not an asset (owning shares of itself!) serves as reduction of stockholders equity  
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What is the cost method for accounting for treasury stock?   show
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show debit treasury stock at par value - excess > par value debit PIC- CS up to original issue price - excess > original issue price debit to RE - acquire > par < original price debit PIC-CS to paid amount, PIC-TS to original price - resale same as issuanc  
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How is the retirement of stock handled?   show
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show Stockholders is decreased by treasury stock. RE is an account underneath stockholders equity, and is not affected by treasury stock.  
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show Debit- RE (dividends) Credit- Dividends payable Debit- Dividends payable Credit- Cash  
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What are property dividends? How are they recorded?   show
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What are liquidating dividends? What is debited?   show
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What are scrip dividends? How recorded?   show
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When stock certificates are given as a dividend, does the proportion of ownership change? What's the entry on the declaration date? at issuance?   show
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show 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  
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show 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  
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What does a stock split do? How is the par value affected?   show
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show 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  
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show entity acquires goods/services by issuing shares, share options, or other equity instruments  
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What are share based payments to nonemployees measured on?   show
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Define requisite service period. service inception date.   show
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show 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  
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When are share-based payments, classified as a liability, measured? How? How is compensation expense allocated?   show
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show 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  
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show 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  
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show readjust each year. Increase Debit- Compensation expense Credit- Liability under SAR plan Deduction Reverse above When redeemed in CS Replace liability with Stock rights outstanding  
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What are the sources of income that require a basic EPS calculation?   show
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How is basic EPS calculated for net income?   show
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show Net income available to common stockholders/ weighted-avg number of common shares outstanding - Numerator calculated by NI -income/+loss from discontinued operations, extraordinary items - take # and - dividends as in basic EPS for net income  
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show Diluted EPS adds common shares held that would be outstanding (convertible preferred stock or bonds) to denominator. - pretend convert on 1st of year add some interest expense back to numerator (NI)  
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show 1. average market price > exercise price 2. average market price <= exercise price 3. EPS would stay the same or increase  
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show (average market price- exercise price)/average market price * # shares of options and warrants - no affect on the numerator  
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In calculating diluted EPS, what happens if convertible bonds or stock werent outstanding the whole year but issued during it? If converted?   show
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What happens if preferred stock is redeemed in regards to the calculation of diluted EPS?   show
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show considered issued and treated as outstanding  
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In a bankruptcy procedure, what is the statement of affairs?   show
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show preferred claims, fully secured creditors, partially secured creditors, unsecured creditors, stockholders equity  
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show starts with the present BV of the assets, then relate the projected proceeds from the liquidation of the assets to the equity interests, finishes with the estimated deficiency  
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show distinguish between events related to reorganization and ongoing operations. Classify liabilites like this at expected amounts on BS  
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When is an entity considered a new entity for reporting purposes after bankruptcy?   show
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What is a quasi reorganization?   show
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show authorization from stockholders & creditors, revaluate assets to current values, eliminate deficit by charging paid-in capital, write down adjustments go directly to RE  
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show when more stock is issued existing shareholders have preemptive privalage to keep the same % of voting rights  
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What is an employee stock ownership plan? what happens if payment is secured by employeer?   show
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What is a dividend payout? How is it calculated?   show
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show 1. not a meaningful measure because assets are carried at historical costs 2. Common Stockholders Equity/ Common Shares outstanding  
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What is rate of return on common stockholders equity? How is it calculated?   show
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What is debt to equity? How is it calculated?   show
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show accounting influenced by the laws of a country so there is no set of requirements  
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