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Chapter 15: Question 4IFRS (page 825)

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 鈥淩eserves鈥� 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.

Short Answer

Expert verified

No, Marry should not make that conclusion.

Step by step solution

01

Meaning of GAAP

Generally accepted accounting principles, or GAAP, are measures that cover the points of interest, complexities, and validity of the business and corporate bookkeeping. The Financial Accounting Standards Board (FASB) uses GAAP as the setting for a comprehensive set of ratified bookkeeping practices and practices.

02

Explaining the comparison made by Marry Tokar between GAAP and IFRS Company.

The Marry is drawing an off-base conclusion. While IFRS allows unrealized losses on non-traded equity investments to be expanded under "reserve," the U.S. GAAP requires that these misfortunes extend to other comprehensive income. Specifically, unrealized losses are detailed within the accumulated. US Other Comprehensive Income (Loss) Accounts Under GAAP.

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Most popular questions from this chapter

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.

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

Common stock, \(5 par value \) 510,000

Treasury stock 90,000

Retained earnings 2,340,000

Paid-in capital in excess of par鈥攃ommon stock 1,320,000

Prepare Wilco鈥檚 December 31, 2017, stockholders鈥� equity section.

(Entries for Stock Dividends and Stock Splits) The stockholders鈥� equity accounts of G.K. Chesterton Company have the following balances on December 31, 2017.

Common stock, \(10 par, 300,000 shares issued and outstanding \)3,000,000

Paid-in capital in excess of par鈥攃ommon stock 1,200,000

Retained earnings 5,600,000

Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.

Instructions

Prepare the appropriate journal entries for each of the following cases.

  1. A stock dividend of 5% is declared and issued.
  2. A stock dividend of 100% is declared and issued.
  3. A 2-for-1 stock split is declared and issued.

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鈥檚 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.

Hinges Corporation issued 500 shares of \(100 par value preferred stock for \)61,500. Prepare Hinges journal entry.
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