Acct 370 Final (Stockholder's Equity and Share-based Compensation)

Other names for Stockholders’ Equity

Shareholders’ equity or net assets (assets-liabilities)

Claim on total assets after liabilities are recognized

Five components of stockholders equity

Which of the five is debit increases and credit decreases because it is a contra-equity account?

1. Paid In Capital (Capital stock & additional)

2. Retained Earnings

3. Accumulated OCI

4. Treasury Stock

5. Noncontrolling interests
   
   Treasury Stock or buybacks

Record a journal entry for issuance of shares with par

Dr. Cash (market price)
Cr. Paid in capital - common stock (plug)
Cr. Common Stock (at par)

Record a journal entry for issuance of shares without par

Dr. Cash (market price)
Cr. Common Stock (market price)

Record a journal entry to recognize the issuance of preferred stock with par

Dr. Cash
Cr. Preferred Stock (at par)
Cr. PIC-PS (plug)

Record the entry for conversion of preferred stock into common stock

Dr. Preferred Stock (at par)
Dr. PIC-PS (at market price)
Cr. Common stock (par x preferred stock x conversion)
Cr. Paid in capital - CS (plug)

What is treasury stock?

stock that has been repurchased and is held by the issuing corporation

Is treasury stock an asset?

No! It’s a contra-equity account, reducing SE on the balance sheet.

Does treasury stock grant rights or result in gains or losses?

No

Record the reacquisition of common stock (treasury stock)

Dr. Treasury Stock (at price paid)
Cr. Cash

Record the reissuance of common stock (selling treasury stock). Higher price than cost

Dr. Cash (at price sold)
Cr. Paid in capital -TS (plug)
Cr. Treasury Stock (at cost)

Record the reissuance of common stock (selling treasury stock). Lower price than cost

Not enough Additional Paid in Capital Left

Dr. Cash [sold for]
Dr. PIC [balance]
Dr. Retained Earnings [plug]
Cr. Treasury Stock [cost]

Record the reissuance of common stock (selling treasury stock). Lower price than cost

Enough Additional Paid in Capital Left

Dr. Cash [sold for]
Dr. PIC [balance]
Cr. Treasury Stock [cost]

Record the reissuance of common stock (selling treasury stock). Lower price than cost

No paid in capital

Dr. Cash [sold for]
Dr. Retained earnings [plug]
Cr. Treasury Stock [cost]

Types of dividends and most common first

1. Cash

2. Property (PPE and inventory and investments)

3. Liquid (return of capital)

4. Stock (own shares)
   All reduce SE except stock

Record declaration of dividends and payment

Declaration
Dr. Retained Earnings
Cr. Dividend Payable

Payment
Dr. Dividend Payable
Cr. Cash

How to calculate how much companies owe PS owners each year in dividends

and total

Div rate x # of outstanding shares x par value

PS in arrears (past) + PS owed currently

What’s cumulative dividend preference and dividends in arrears?

• requires any unpaid dividends on preferred stock to accumulate

• must be paid before common dividends

• not a liability but disclosed

Entry for dividends in arrears allocation

Dr. Retained Earnings (total dividend amount paid)
Cr. Dividend Payable -PS
Cr. Dividend Payable - CS (how much is paid)

Restricted Stock Plans (Share awards and RSUs)

Gifted shares with strings (performance), held in trust until vesting date

Employee receives right at grant date for share awards but future date for unit awards

Stock Options

good price at a certain time but they do have to buy

ESPPs

have to buy but always get shares at a discount

Record entry for stock share awards at grant date

Dr. Unearning compensation (price x shares)
Cr. Common Stock (par x shares)
Cr. PIC - CS (plug)

Record amortization of stock share awards

Dr. Compensation expense
Cr. Unearned Compensation (compensation/years)

Record forfeiture of share awards (incurred)

Dr. CS (past)
Dr. PIC -CS (past)
Cr. Retained Earnings (plug)
Cr. Unearned Compensation (leftover)

Record comp. exp for restricted stock units

Dr. Comp Exp [total value/ years)
Cr. PIC - Restricted Stock

Record issuance of restricted stock units on vesting date

DR. PIC -rest [past]
Cr. CS (par)
Cr. PIC -CS (plug)

Record forfeitures as incurred for stock units

Dr. Comp Exp (this year recorded - what should have been recorded for the year)
Cr. PIC -RS

Record estimated forfeitures for stock units

Dr. Comp Exp (new value/years)
Cr. PIC - RS

What are stock options?

• incentivizes employee to increase market price of stock

Stock option entry at grant date

No entry

Stock option recognizing compensation expense entry

Dr. Comp exp (FV of options at grant date/years)

Cr. PIC - SO

Percentage of stock options vested at end of period entry

Dr. cash (market price of outstanding shares used)
Dr. PIC - Stock options (get rid of PIC - FV x percentage)
Cr. CS (par value times shares used)
Cr. PIC-CS (plug)

Expired stock options in year 10

Dr. PIC - SO (FV x remaining percentage)
Cr. PIC - Expired SO

Estimated expired stock options/forfeitures

Dr. Comp Exp (FV x used percentage/ years)
Cr. PIC-SO

If target for stock options is not probable how would we recognize compensation expense

We wouldn’t

ESPP’s entry for 5% discount, noncompensatory at issuance of stock

Dr. Cash (shares x price x 0.95)
Cr. CS (shares x par)
Cr. PIC - CS (plug)

ESPP’s entry for 10% discount, compensatory at issuance of stock

Dr. Cash (shares x price x 0.9)

Dr. Compensation Expense (leftover)
Cr. CS (shares x par)
Cr. PIC-CS (plug)