ACC 326 Study Guide - Midterm Guide: Historical Cost, Current Asset, Credit Risk

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31 May 2017
- Two ways to do treasurey stock accounting
1. Cost Method = purchase and sale of treasury stock viewed as one continuous transactions
Treasury Stock xxx
Cash xxx
Reissue at
Cash XXX
Treasury XXX
BUT ONLY IF THE REISSUE PRICE IS HIGHER! If it’s lower then debit the APIC as well as CASH and
credit the Treeasury only
2. Par-Value Method
a. Don’t need to know
- The difference is the basis of reacquired stock – cost or par value
- Effect of CF when div declared?? NONE
- Effect of CF when div paid?? FINANCING
- Common stock div are aat discretion of the board
- Stock Dividends:
1. Cumularive Pref (most common) = usually has stated rate and if you don’t pay a div in a year
you have to pay div for preferred before paying shareholders of common
2. Fully Participating = preferred shareholders have preference for current year
3. Partially Particpating = same as fully but only up to a certain percent
- When amount paid is NOT cumulative, take every year individually, pay the preferred stock first
(up to the annual dividend) and then give the rest to common stock
- When amount paid IS cumulative, continue through the years taking into account the deficit
that was not paid to the preferred stock in the arears account. Once there preferred has been
paid off to the appropraiate amount (annual div a year has reached xx max) put the rest into
common stock
- Do a stock dividend if you don’t have cash but want to signal that youre doing well
- Do a stock split to get more for what you own
- Small stock div =
Dividends xxx
Common Stock xxx
APIC xxx
- Large stock div
APIC xxx
Common Stock xxx
Long-Term Debt
- Management incentive to keep debt low = low interest rate, min collateral, flexible covenants,
match pmt terms to LT CF INFLOWS
- ST debt = less than 12 mo maturities, callable/payable on demand, covenant violation
- Analyst wants to know liquidity and projection of CF while Lenders want to know your
borrowing capacity and whether you can pay debt of not
- Issuing LT debt = recorded at FV which is the amt of cash received
Cash xxx
Bonds Pay xxx
- Day 1 is always FV but then can either be Historical or FV
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