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Chapter 15: Q15-3ISTQ (page 831)

The term reserves is used under IFRS with reference to all of the following except:

(a) gains and losses on revaluation of property, plant, and equipment.

(b) capital received in excess of the par value of issued shares.

(c) retained earnings.

(d) fair value differences.

Short Answer

Expert verified

Answer

The correct option is(b) capital received in excess of the par value of issued shares.

Step by step solution

01

Definition of Outstanding shares

The shares in the hands of investors are known as outstanding shares. These shares are used for determining earnings per share.

02

Explanation of the correct option

(b) Capital received in excess of the par value of issued shares.

Reason: Under IFRS, the capital received over the par value of the share issued by a company is reported as share premium. Therefore, it is an incorrect option.

03

Explanation for the incorrect options

All other options are correct because the reserve account under IFRS includes:

(a) The gains or losses arising from the increase or decrease in the value of property, plant, and equipment at the time of revaluation.

(c) Retained earnings are also reported in a reserve account under IFRS because it includes the profit held for re-investment and dividend payment.

(d) Fair value differences are also included in a reserve account because fair value measurement generates profit or loss for a business entity.

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Most popular questions from this chapter

Woolford Inc. declared a cash dividend of $1.00 per share on its 2 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15. Prepare all journal entries necessary on those three dates.

Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain.

Arantxa Corporation has outstanding 20,000 shares of \(5 par value common stock. On August 1, 2017, Arantxa reacquired 200 shares at \)80 per share. On November 1, Arantxa reissued the 200 shares at $70 per share. Arantxa had no previous treasury stock transactions. Prepare Arantxa’s journal entries to record these transactions using the cost method.

Cole Inc. owns shares of Marlin Corporation stock. At December 31, 2017, the securities were carried in Cole’s accounting records at their cost of \(875,000, which equals their fair value. On September 21, 2018, when the fair value of the securities was \)1,200,000, Cole declared a property dividend whereby the Marlin securities are to be distributed on October 23, 2018, to stockholders of record on October 8, 2018. Prepare all journal entries necessary on those three dates.

Washington Company has the following stockholders’ equity accounts at December 31, 2017.

Common Stock (\(100 par value, authorized 8,000 shares) \)480,000

Retained Earnings 294,000

Instructions

a. Prepare entries in journal form to record the following transactions, which took place during 2018.

1. 280 shares of outstanding stock were purchased at \(97 per share. (These are to be accounted for using the cost method.)

2. A \)20 per share cash dividend was declared.

3. The dividend declared in (2) above was paid.

4. The treasury shares purchased in (1) above were resold at \(102 per share.

5. 500 shares of outstanding stock were purchased at \)105 per share.

6. 350 of the shares purchased in (5) above were resold at \(96 per share.

b.Prepare the stockholders’ equity section of Washington Company’s balance sheet after giving effect to these transactions, assuming that the net income for 2018 was \)94,000. State law requires restriction of retained earnings for the amount of treasury stock.
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