Module 9: Stockholders

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Module 9 Stockholders Equity
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2. TS Example -Journal Entries

• Feb repurchase 10,000 sh. _at_ 7 70,000.
• July reissue 2,000 sh _at_ 8 16,000
• (cost 2,000 _at_ 7 14,000)

TS 70,000 Cash 70,000
Cash 16,000 TS 14,000 APIC - TS 2,000
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2. TS Example -Journal Entries

• Dec reissue 8,000 sh. _at_ 6 48,000
• (cost 8,000 sh._at_ 7 56,000)
• Now we need to debit one or more accounts to
  compensate for the difference.
• (1) debit APIC-TS (but lower limit is to -0-).
• (2) debit RE if necessary for any remaining
  balance (this is only necessary when we are
  decreasing equity).

Cash 48,000 APIC-TS (1) 2,000 RE (2)
6,000 TS 56,000
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3. Stock Options - Illustration 1

• Basically, the pricing model assumes a number of
  factors which could affect the growth in the
  price of the stock, and also incorporates
  probabilities for the number of employees that
  would actually exercise the option.
• Since total compensation expense 200,000, we
  will recognize it over the life of the option
  (200,000/2 100,000 per year).
• The journal entries in Illustration 1 are
  required with SFAS No. 123R.

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3. Stock Options - Illustration 1(SFAS 123R
required journal entries)

• For 2005
• Compensation expense 100,000
• APIC - stock options 100,000
• For 2006
• Compensation expense 100,000
• APIC - stock options 100,000
• Jan. 2, 2007
• Cash (40 x 30,000) 1,200,000
• APIC - stock options 200,000
• Common stock (10 x 30,000) 300,000
• APIC - common stock (plug) 1,100,000
• Note that, even though the market price of the
  stock at 1/2/07 is 80 per share, the transaction
  is recorded at the PV of the estimated future
  price at the date of exercise (46.67 per share).
  The company never recognizes the additional
  value that it has given to the employees.

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3.Restricted Stock-Illustration 2

• Given the following information Que Company
  adopted a stock compensation plan that issued
  10,000 shares of restricted stock to employees at
  January 2, 2005. The par value of the common
  stock was 10, and the stock was trading at 15
  per share at the issue date. The vesting period
  was 2 years after that time the stock would be
  unrestricted. The journal entry at the time of
  issue (1/2/05) would be (10,000 sh. x 15
  150,000)
• Deferred comp. expense 150,000
• CS (Restricted) 100,000
• APIC - CS 50,000
• (Note Deferred Comp. is part of Other
  Comprehensive Income, until it is transferred to
  Income Statement over the 2 year vesting period.)

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3. Restricted Stock- Illustration 2

• For 2005
• Compensation expense 75,000
• Deferred comp. expense 75,000
• For 2006
• Compensation expense 75,000
• Deferred comp. expense 75,000
• Jan. 2, 2007 (If separate account is used for
  restricted stock - transfer par value)
• CS (Restricted) 100,000
• CS 100,000
• (Otherwise, no journal entry required the
  restriction is released and the shares are no
  longer restricted.)

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8. Comprehensive Class Problem - Stockholders
Equity

• Given the following SE balances for Company G at
  1/1/08
• Common stock, 10 par, 50,000 shares authorized,
• 20,000 shares issued and outstanding
  200,000
• APIC on common stock 400,000
• Retained earnings 400,000
• During 2008, Company G had the following
  activity
• 1. Net income for the year was 250,000.
• 2. Cash dividends of 2 per share were declared
  and paid on February 1.
• 3. On June 1, Company G repurchased 2,000 shares
  of its own stock at 20 per share (using the cost
  method).
• 4. On December 1, Company G reissued 500 shares
  of treasury stock at 18 per share.
• 5. On December 15, Company G declared a 100
  stock dividend, to be distributed to all of its
  shareholders (including treasury), on Jan. 15,
  2009.
• 6. At Dec. 31, Company G recorded an AJE to
  revalue its available for sale investments from
  20,000 to 32,000.

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Comprehensive Class Problem - Stockholders
Equity (continued)

• Required
• A.Prepare journal entries for items 2 through 6
  (item 1 would require detail information for
  revenues and expenses to prepare - just know that
  the credit is to retained earnings for 250,000).
• B.Prepare the Statement of Stockholders Equity
  for Company G for 2008.
• C.Prepare the stockholders equity section of the
  balance sheet for Company G for 2008, including
  the appropriate description for the common stock.

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Comprehensive Class Problem - Solution

• A.Journal entries
• 1.No entry required.
• 2. Calc 20,000 x 2 40,000
•  
• 3. Calc 2,000 shares x 20 40,000

Cash Dividends (RE) 40,000 Dividends Payable
40,000 Dividends Payable 40,000 Cash
40,000
Treasury Stock 40,000 Cash 40,000
 
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Comprehensive Class Problem - SolutionPart A
Journal Entries

• 4.Calc 500 shares x 18 market 9,000
• 500 shares x 20 cost 10,000
• 5.Calc 20,000 new shares x 10 par 200,000
•  
• Note in Item 5, the stock has not yet been
  distributed, so we cannot credit common stock, or
  show it issued yet. This Stock Dividends
  Distributable account is a related equity
  account, and indicates that there are shares of
  stock to be distributed in the future.

Cash 9,000 market Retained Earnings
1,000 plug Treasury Stock
10,000 cost
Stock Dividend (RE) 200,000 Stock Div.
Distributable 200,000
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Comprehensive Class Problem - SolutionPart A
Journal Entries

• 6. Calc value up 12,000
•  
• Note that the Unrealized Gain account is part
  of stockholders equity (not the income
  statement), and it is located as a separate
  column called Other Comprehensive Income (OCI) in
  the Statement of Stockholders Equity .

AFS Investment 12,000 Unrealized Gain on AFS
12,000