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Chapter 15: Question 8IFRS (page 831)

Wilco Corporation has the following account balances on December 31, 2017.

Share capital—ordinary, \(5 par value \) 510,000

Treasury shares 90,000

Retained earnings 2,340,000

Share premium—ordinary 1,320,000

Instructions

Prepare Wilco’s December 31, 2017, equity section.

Short Answer

Expert verified

Total Equity of Wilco Corporation is $4,080,000.

Step by step solution

01

Meaning of Shareholders Equity

Stockholders' equity is the difference between the assets of the organization and external liabilities at a specific date. The primary source is money initially and is therefore contributed within the company through share offerings. The second source includes the retained earnings(RE) collected by the company over time through its operations.

02

Preparing Wilco Corporation Equity section

WILCO CORPORATION

EQUITY

December 31, 2017


Share capital-ordinary,$5 par value

$ 510,000

Share Premium-Ordinary

1,320,000

Retained Earnings

2,340,000

Treasury Shares

(90,000)

Total Equity

$4,080,000

Working Notes:

Calculation of share capital

Sharecapital=Shareissued×Parvalue=102,000×$5=$510,000

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Most popular questions from this chapter

Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, statement of financial position? How should these dividends be reported?
  2. If the preference shares are convertible into seven shares of \(10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
  3. If the preference shares were issued at \)107 per share, how should the preference shares be reported in the equity section?

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.

(Stock Dividends and Stock Split) Oregon Inc. \(10 par common stock is selling for \)110 per share. Four million shares are currently issued and outstanding. The board of directors wishes to stimulate interest in Oregon common stock before a forthcoming stock issue but does not wish to distribute capital at this time. The board also believes that too many adjustments to the stockholders’ equity section, especially retained earnings, might discourage potential investors. The board has considered three options for stimulating interest in the stock:

The board has considered three options for stimulating interest in the stock:

  1. A 20% stock dividend.
  2. A 100% stock dividend.
  3. A 2-for-1 stock split.

Instructions

Acting as financial advisor to the board, you have been asked to report briefly on each option and, considering the board’s wishes, make a recommendation. Discuss the effects of each of the foregoing options.

The following comment appeared in the notes of Colorado Corporation’s annual report: “Such distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company’s ordinary cash dividends.” How would a partial liquidating dividend be accounted for in the financial records?

(Treasury Stock—Ethics) Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation’s CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation’s cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. Should Kenseth authorize the transaction?
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