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Chapter 15: Question 6IFRS (page 825)

Indicate how each of the following accounts should be classified in the Equity section.

  1. Share Capital—Ordinary.
  2. (b) Retained Earnings.
  3. Share Premium—Ordinary.
  4. Treasury Shares.
  5. Share Premium—Treasury
  6. Share Capital—Preference
  7. Accumulated Other Comprehensive Income.

Short Answer

Expert verified

Each of the accounts will mention in the equity section with a different classification.

Step by step solution

01

Meaning of Equity

Equity, commonly referred to as shareholders' value (or owners' value for privately held companies), represents the amount of money that would be returned to the company's shareholders if all resources were sold, and in case of liquidation, all the debts of the company were paid.

02

Classification of different accounts in the Equity section

The Classification is made as given below:

Accounts

Classification

  1. Share Capital-Ordinary

Share capital

  1. Retained earnings

Retained earnings

  1. Share Premium-Ordinary

Share premium

  1. Treasury Shares

Deducted from total equity

  1. Share Premium- Treasury

Share Premium

  1. Share Capital-Preference

Share capital

  1. Accumulated Other

Comprehensive Income

Added to total Equity

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Most popular questions from this chapter

Swarten Corporation issued 600 shares of no-par common stock for \(8,200. Prepare Swarten’s journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of \)2 per share.

Pistons Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation’s capital stock.

S.no.

Particular

Folio

Debit \(

Credit \)

May 2

Cash

192,000

Capital Stock

192,000

(Issued 12,000 shares of \(5 par value common stock at \)16 per share)

May 10

Cash

600,000

Capital Stock

600,000

(Issued 10,000 shares of \(30 par value preferred stock at \)60 per share)

May 15

Capital Stock

15,000

Cash

15,000

(Purchased 1,000 shares of common stock for the treasury at \(15 per share)

May 31

Cash

8,500

Capital Stock

5,000

Gain on Sale of Stock

3,500

(Sold 500 shares of treasury stock at \)17 per share)

Instructions

On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions.

Nottebart Corporation has outstanding 10,000 shares of \(100 par value, 6% preferred stock and 60,000 shares of \)10 par value common stock. The preferred stock was issued in January 2017, and no dividends were declared in 2017 or 2018. In 2019, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?

(Stock Dividends) Kulikowski Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kulikowski wishes to discuss the accounting implications of such an authorization with you before the next meeting of the board of directors.

Instructions

  1. The first topic the vice president wishes to discuss is the nature of the stock dividend to the recipient. Discuss the case against considering the stock dividend as income to the recipient.
  2. The other topic for discussion is the propriety of issuing the stock dividend to all “stockholders of record” or to “stockholders of record exclusive of shares held in the name of the corporation as treasury stock.” Discuss the case against issuing stock dividends on treasury shares.

(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of \(10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2017, Mask purchased 1,000 shares of treasury stock for \)18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2017, Mask sold 500 shares of the treasury stock for \(20 per share.

In October 2017, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was \)21 per share.

On December 20, 2017, Mask declared a $1 per share cash dividend, payable on January 10, 2018, to shareholders of record on December 31, 2017.

Instructions

  1. How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the balance sheet on December 31, 2017?
  2. How should Mask account for the stock dividend, and how would it affect the stockholders’ equity at December 31, 2017? Why?
  3. How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2017? Why?
See all solutions

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