ACCT 3312 exam 3(chap 20-21)

share based compensation/earnings per share

stockholders equity

when company issues stock and buys it back; difference between assets and liability at a corporation

what are the 5 components of SHE

paid in capital, retained earnings, accumulated other comprehensive income, treasury stock, noncontrolling interest

paid in capital

capital stock- primary issue of shares; they get ownership rights

additional paid in capital- reports value fo assets received at par stated val; difference additional paid in capital accounts combined for reporting purposes

par value

value per share of stock; legal capital or minimum amount that must be maintained in the company for protection of creditors

authorized shares

number of shares issued legally

issued shares

number of shares of authorized capital stock issued to shareholders

unissued shares

number of authorized shares of capital stock not issued (authorized shares - issued shares)

outstanding shares

stock owned by shareholders; (issued - shares repurhcased and held as treasury stock)

treasury stock

shares previously issued and later repurchased by corporation (issued - outstanding)

Retained earnings

company’s accumulated net income/loss - accumulated dividends

accumulated other comprehensive income

change in equity; affected by changes in equity because of non-owner sources NOT included as part of net income

noncontrolling interest

net asset of company; owned by outside investor that are not part of controlling interest (>50% interest)

stated value

state required minimum amount to be assigned to shares

motivation to reacquire common stock

increase of market price of stock, distribute excess cash to stockholders, thwart takeover attempt(prevent another firm’s assempt to acquire the company)

dividend

distribution of retained earnings to shareholders in for of assets or shares of company’s stock

liquidating dividend

return of stockholder’s investment rather than distribution of company’s profit; may be issued when company is dissolving and using dividends as a way to distribute assets

stock dividend

proportionate distribution of additional shares of a company’s own stock to its shareholders

motivation for stock dividends

to continue dividend distribution without disbursing needed cash for operations, to increase # shares outstanding(decrease market $/share and possibly increase trading of shares on market), to convey portion of earnings will stay permanently invested in the business

small stock dividend

<20-25% outstanding shares; recognized at fair value

stock split effected in the form of dividends (large stock dividend)

>20-25* outstanding shares; recognized at par value

comprehensive income

change in equity due to transaction from nonowner sources; made up of OCI and net income

examples of equity disclosures

# Shares authorized, issued, outstanding, par value; changes in SHE accounts and in $ shares of equity securities; right and privileges associated with company’s securities such as dividend and liquidation preferred, participation rights, call price, and conversion rates; restrictions to retained earnings

book value per share

CS/ $ CS shares outstanding

payout ratio

cash common dividend / net income available to common stockholders

return on equity

net income available to common stockholders / average common SHE

price to earnings ratio

market $ per share / earnings per share

share based compensation plans

certain employees receive compensation in a form other than cash as a way to encourage good performance and retianment/recruit employees

grant date

date when grantor and grantee reach mutual understanding of terms and condiitons of share based payment award

vest

to earn the rights to; payment vested at date that grants the right to receive and retain shares doesn’t depend on completing the service/performing the condition (market conditions do NOT equal vesting conditions)

requisite service period

period where service is supposed to be performed in exchange for award; assumed to be vesting period if not said otherwise

vesting date

date that compensation is exercisable by employee

vesting period

period from grant date to vesting date

restricted stock shares

stock issued at grant date to employee; employer holds stock in trust through vesting period; employee still has to complete requirements; if employee leaves before vesting period shares are forfeited

restricted stock unit awards

The employer grants the right to the employee to receive stock under certain conditions: fair value of compensation at grand date; employee must complete requirements; if employee leaves before vesting period, shares are forfeited

stock option

form of share-based compensation; company lets employee buy stock over a specified time period at a fixed price(exercise price)

• employees like because if stock price goes up, employees can buy at cheaper exercise price and profit from the difference

• company uses these to motivate employee to help increase company’s stock price because employee only benefits if price goes up

employee share purchase plans

allows employees the opportunity to purchase shares of stock of their employer at discounted price

employee share purchase plans: record no compensation exp if:

employees don’t receive special treatment, discount is small or insignificant, almost all employees can join plan and it’s offered on equal basis, plan does not include option like features (except for specific allowed exceptions)

employee share purchase plans: record compensation expense for stock discount extended to employees

if any if these conditions is NOT met: employees don’t receive special treatment, discount is small or insignificant, almost all employees can join plan and it’s offered on equal basis, plan does not include option like features (except for specific allowed exceptions)

basic earnings per share formula

net income available to common shareholders / weighted average common shares outstanding

basic EPS

amount of earnings for period available to each share of common stock outstanding during the period; if company incurs loss then company calculates net loss per share

simple capital structure

company has only common stock and not other securities that oculd turn into common stock; no other things that could create dilution (decrease in EPS); nothing else that can increas share count in EPS

complex capital structure

exists when company owns financial instruments that have the potential to increase common shares; through exercise of conversion; results in decrease to EPS int he future

diluted EPS

shows EPS assuming all dilutive securities are converted

diluted security

EPS decreases when you include it; include in diluted EPS

antidilutive security

EPS does NOT go down when you include it; do NOT include in diluted EPS

convertible debt

financial instruments with potential to convert to CS; might reduce EPS

convertible preferred stock

preferred shares that can be turned into common shares

stock ooptions and warrants

contracts that let someone buy common stock at set price, if exercise it increases the number of common shares and decreases EPS

treasury stock method

pretends options/warrants exercised at the beginning of the year

unvested restricted stock

shares granted but not yet earned

contingency issuable shares

common shares that will only be issued if certain conditions are met

contingency issuable shares: condition is satisfied at end of reporting period

treat shares as outstanding for diluted EPS

contingency issuable shares: condiiton is NOT satisfied

test them if shares would be issuable