What are the journal entry accounts when stock is issued to nonemployees above par value?
[DR] Cash (received from the purchaser)
[CR] Common Stock (at par)
[CR] APIC (amount over par = plug)
What are the journal entry accounts when stock is issued to nonemployees at par value?
[DR] Cash (received from the purchaser)
[CR] Common Stock (at par)
What are the journal entry accounts when stock is issued to nonemployees below par value?
[DR] Cash (received from the purchaser)
[DR] APIC (for the discount amount)
[CR] Common Stock (at par)
What is a stock subscription?
A subscription is a promise to purchase stock, but the purchaser doesn’t have all the cash at this time. He pays for it like layaway. Stock is issued only when the subscription is paid in full.
What are the journal entry accounts to record a stock subscription? How is the stock subscription account presented on the Balance Sheet? What is the effect on Equity?
[DR] Stock Subscriptions Receivable [this is an equity contra-account)
[CR] Common Stock Subscribed
[CR] APIC (use the regular APIC account)
Note that the Subscription Receivable reduces Equity, but the CS Subscribed and APIC increase Equity so there is no net chg.
What are the JE accts used as the stock subscription is paid? What are the JEs when the subscription is paid in full? How do these accts change if collectibility is reasonably assured?
As payment is received
[DR] Cash
[CR] Stock Subscriptions Receivable
When the Subscription is paid in full
[DR] Common Stock Subscribed
[CR] Common Stock (issued)
If collectibility is reasonably assured, the first payment becomes a "down payment" and the entire issue of Common Stock and APIC is recorded as if paid in full.
What are the JE accts when a Stock Right is issued? When it is exercised?
The issuance of Stock Rights is a memorandum entry only.
When the rights are exercised
[DR] Cash (the strike price of the rights)
[CR] Common Stock (at par)
[CR] APIC
When stock is issued to pay for outside services, what are the journal entry accts and what is the amount used for this payment.
[DR] A/P (at fair market value for the services or items received)
[CR] Common Stock (at par)
[CR] APIC
The Common Stock and APIC are priced at fair market value at the time used for payment.
Describe what happens when a dividend is declared? How is this accounted and if recorded, what JE accts are used?
The Board agrees to pay a dividend. The dividend becomes a payable (liability) on the date of declaration. The dividend is taken from Retained Earnings
[DR] Retained Earnings
[CR] Dividend Payable (liability)
Describe what happens on a dividend date of record? How is this accounted and if recorded what JE accts are used?
This is a formality to recognize the stockholders who will receive a declared dividend. No entry is made.
Describe what happens on the date a dividend is actually paid? How is this accounted and if recorded what JE accts are used?
[DR] Dividends Payable (liability)
[CR] Cash
What are the steps involved in paying a dividend using property (in-kind)? What are the JE accts?
Step 1: Mark the property to be distributed to FMV and recognize gain/(loss). Since this property will be used as a dividend, the “cash” component is taken from Retained Earnings
[DR] Retained Earnings
[DR] Accumulated Depreciation
[DR] Loss (if applicable)
[CR] Asset (at original cost)
[CR] Gain (if applicable)
What is a Scrip Dividend? What are the JEs used? If the Scrip has an interest provision, to what acct is interest charged
When a company wants to declare a dividend, but doesn’t have the cash to pay for it at the time, it issues a note payable.
[DR] Retained Earnings
[CR] Note Payable
If Interest: Charge to Interest Expense as happens with a N/P (do not charge to RE)
When does a liquidating distribution occur? In what order are the accounts reduced for this distribution?
When the amount of the dividend declared exceeds Retained Earnings.
Reduce Retained Earnings until 0
Reduce APIC until 0
Reduce Common Stock (at this point the company is liquidating and closing its doors)
How do the SEC and IFRS differ in their presentation of the dividends?
They don’t differ. Both require presentation of dividends per share, and it total, for each class of stock.
The entity declares a stock dividend. What steps are involved in determining the treatment of the dividend? What are the JE accts used?
IF the stock dividend is < 20-25% of all dividends outstanding, then this is a SMALL dividend and the accounting uses the FMV
[DR] Retained Earnings (at FMV)
[CR] Common Stock (at par)
[CR] APIC
IF the stock dividend is > 20-25% of all dividends outstanding, then this is a LARGE dividend and the accounting uses the par value
On the date declared
[DR] Retained Earnings (at par)
[CR] Common Stock Distributable (at par)
On the date paid
[DR] Common Stock Distributable
[CR] Common Stock
The entity declares a stock split (or a reverse split). What are the JE accts used?
No JE acct is used. There is merely a change in form, not a change in actual equity.
The total number of shares outstanding is adjusted, as well as the par per share.
True / False: Stock splits also affect Treasury Stock.
False
Unless there is a legal obligation to protect the treasury stock from dilution.
What is the difference between GAAP requirements on the presentation of the Statement of Changes in Stockholders’ Equity vs IFRS vs the SEC?
GAAP does not require a separate statement. The changes may be stated in a note.
IFRS and the SEC require the Statement to be presented as a primary financial statement.
