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.
Lindsey Hunter Corporation is authorized to issue 50,000 shares of \(5 par value common stock. During 2017, Lindsey Hunter took part in the following selected transactions.
Instructions
Ravonette Corporation issued 300 shares of \(10 par value common stock and 100 shares of \)50 par value preferred stock for a lump sum of \(13,500. The common stock has a market price of \)20 per share, and the preferred stock has a market price of $90 per share. Prepare the journal entry to record the issuance.
(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.
Joe Dumars Company has outstanding 40,000 shares of \(5 par common stock, which had been issued at \)30 per share. Joe Dumars then entered into the following transactions.
Instructions
Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method (I = Increase; D = Decrease; NE = No effect).
# | Asset | Liabilities | Stockholders’ Equity | Paid-in Capital | Retained Earnings | Net Income |
1 | ||||||
2 | ||||||
3 |
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