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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鈥擮rdinary.
  2. (b) Retained Earnings.
  3. Share Premium鈥擮rdinary.
  4. Treasury Shares.
  5. Share Premium鈥擳reasury
  6. Share Capital鈥擯reference
  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

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.

Hatch Company has two classes of capital stock outstanding: 8%, \(20 par preferred and \)5 par common. At December 31, 2017, the following accounts were included in stockholders鈥� equity.

Preferred Stock, 150,000 shares \( 3,000,000

Common Stock, 2,000,000 shares 10,000,000

Paid-in Capital in Excess of Par鈥擯referred Stock 200,000

Paid-in Capital in Excess of Par鈥擟ommon Stock 27,000,000

Retained Earnings 4,500,000

The following transactions affected stockholders鈥� equity during 2018.

Jan.1 30,000 shares of preferred stock issued at \)22 per share.

Feb.1 50,000 shares of common stock issued at \(20 per share.

June 1 2-for-1 stock split (par value reduced to \)2.50).

July 1 30,000 shares of common treasury stock purchased at \(10 per

share. Hatch uses the cost method.

Sept.15 10,000 shares of treasury stock reissued at \)11 per share.

Dec.31 The preferred dividend is declared, and a common dividend of 50垄

per share is declared.

Dec. 31 Net income is $2,100,000.

Instructions

Prepare the stockholders鈥� equity section for Hatch Company at December 31, 2018. Show all supporting computations.

(Stockholders鈥� Equity Section) Bruno Corporation鈥檚 post-closing trial balance at December 31, 2017, is shown as follows.

BRUNO CORPORATION

POST-CLOSING TRIAL BALANCE

DECEMBER 31, 2017

Dr.

Cr.

Accounts payable

\( 310,000

Accounts receivable

\) 480,000

Accumulated depreciation鈥攂uildings

185,000

Additional paid-in capital in excess

of par鈥攃ommon

1,300,000

From treasury stock

160,000

Allowance for doubtful accounts

30,000

Bonds payable

300,000

Buildings

1,450,000

Cash

190,000

Common stock (\(1 par)

200,000

Dividends payable (preferred stock鈥攃ash)

4,000

Inventory

560,000

Land

400,000

Preferred stock (\)50 par)

500,000

Prepaid expenses

40,000

Retained earnings

301,000

Treasury stock (common at cost)

170,000

Totals

\(3,290,000

\)3,290,000

At December 31, 2017, Bruno had the following number of common and preferred shares.

Common

Preferred

Authorized

600,000

60,000

Issued

200,000

10,000

Outstanding

190,000

10,000

The dividends on preferred stock are \(4 cumulative. In addition, the preferred stock has a preference in liquidation of \)50 per share.

Instructions

Prepare the stockholders鈥� equity section of Bruno鈥檚 balance sheet at December 31, 2017.

Where in the financial statements is preferred stock normally reported?

(Preferred Dividends) Matt Schmidt Company鈥檚 ledger shows the following balances on December 31, 2017.

7% Preferred stock鈥擻(10 par value, outstanding 20,000 shares \) 200,000

Common stock鈥擻(100 par value, outstanding 30,000 shares 3,000,000

Retained earnings 630,000

Instructions

Assuming that the directors decide to declare total dividends in the amount of \)366,000, determine how much each class of stock should receive under each of the conditions stated below. One year鈥檚 dividends are in arrears on the preferred stock.

  1. The preferred stock is cumulative and fully participating.
  2. The preferred stock is noncumulative and nonparticipating.
  3. The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.
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