Chapter 15: Q15-5ISTQ (page 831)
Under IFRS, a purchase by a company of its own shares results in:
(a) an increase in treasury shares.
(b) a decrease in assets.
(c) a decrease in equity.
(d) All of the above.
Answer
All of the options given are correct.
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The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2017. In 2017, 15,000 shares were authorized and 7,000 shares of common stock (\(50 par value) were issued at a price of \)57. In 2018, 1,000 shares were issued as a stock dividend when the stock was selling for \(60. Three hundred shares of common stock were bought in 2019 at a cost of \)64 per share. These 300 shares are still in the company treasury.
In 2018, 10,000 preferred shares were authorized and the company issued 5,000 of them (\(100 par value) at \)113. Some of the preferred stock was reacquired by the company and later reissued for \(4,700 more than it cost the company.
The corporation has earned a total of \)610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation.
Instructions
Prepare the stockholders’ equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2019. Account for treasury stock using the cost method.
Before Gordon Corporation engages in the treasury stock transactions listed on the next page, its general ledger reflects, among others, the following account balances (par value of its stock is \(30 per share).
Paid-in Capital in Excess of Par Common Stock Retained Earnings
Common Stock
\)99,000 \(270,000 \)80,000
Instructions
Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes.
(a) Bought 380 shares of treasury stock at \(40 per share.
(b) Bought 300 shares of treasury stock at \)45 per share.
(c) Sold 350 shares of treasury stock at \(42 per share.
(d) Sold 110 shares of treasury stock at \)38 per share.
(Preferred Stock Dividends) Cajun Company has outstanding 2,500 shares of \(100 par, 6% preferred stock and 15,000 shares of \)10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years.
Instructions
Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per share amounts using the format shown below
Assumptions | |||||
(a) Preferred, noncumulative And nonparticipating | (b) Preferred, cumulative, and fully participating | ||||
Year | Paid-out | Preferred | Common | Preferred | Common |
2012 | \(13,000 | ||||
2013 | \)26,000 | ||||
2014 | \(57,000 | ||||
2015 | \)76,000 |
(Equity Transactions and Statement Preparation) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000 shares of \(100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of \)10 par value common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at \(16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the
following assets: equipment with a fair value of \)50,000; a factory
building with a fair value of \(160,000; and land with an
appraised value of \)270,000.
July 29 Purchased 1,800 shares of common stock at \(17 per share. (Use cost
method.)
Aug. 10 Sold the 1,800 treasury shares at \)14 per share.
Dec. 31 Declared a \(0.25 per share cash dividend on the common stock and
declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a \)175,700 net
income.
Instructions
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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