Zaata Ltd decided to repurchase 500,000 of its ordinary shares under a buy-back scheme for $5.70 per share. At the date of the buy-back, the equity of the company consisted of: Share capital (6,000,000 shares fully paid) General reserve Retained earnings $ 12,000,000 1,360,000 2,460,000 The costs of the buy-back scheme amounted to $7,600. Instructions: A.Prepare the journal entries to account for the buy-back, assuming:(i)that the original amount of the shares is eliminated from Share Capital, and then any remaining buy-back price adjusted equally against the General Reserve and Retained Earnings accounts.(ii)that the buy-back is not adjusted against share capital, but is adjusted firstly against the General Reserve account, then any remaining against the Retained Earnings account. B.Assume now that the buy-back price per share was equal to $2.40 and that the company had no General Reserve account, and retained earnings of only $1,040,000. Further, assume that the company accounts for share buy-backs against retained earnings first. Prepare journal entries to record the share buy-back
Zaata Ltd decided to repurchase 500,000 of its ordinary shares under a buy-back scheme for $5.70 per share. At the date of the buy-back, the equity of the company consisted of: Share capital (6,000,000 shares fully paid) General reserve Retained earnings $ 12,000,000 1,360,000 2,460,000 The costs of the buy-back scheme amounted to $7,600. Instructions: A.Prepare the journal entries to account for the buy-back, assuming:(i)that the original amount of the shares is eliminated from Share Capital, and then any remaining buy-back price adjusted equally against the General Reserve and Retained Earnings accounts.(ii)that the buy-back is not adjusted against share capital, but is adjusted firstly against the General Reserve account, then any remaining against the Retained Earnings account. B.Assume now that the buy-back price per share was equal to $2.40 and that the company had no General Reserve account, and retained earnings of only $1,040,000. Further, assume that the company accounts for share buy-backs against retained earnings first. Prepare journal entries to record the share buy-back
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Zaata Ltd decided to repurchase 500,000 of its ordinary shares under a buy-back scheme for $5.70 per share. At the date of the buy-back, the equity of the company consisted of:
Share capital (6,000,000 shares fully paid)
General reserve
Retained earnings
$
12,000,000
1,360,000
2,460,000
The costs of the buy-back scheme amounted to $7,600.
Instructions:
A.Prepare the journal entries to account for the buy-back, assuming:
(i)that the original amount of the shares is eliminated from Share Capital, and then any remaining buy-back price adjusted equally against the General Reserve and Retained Earnings accounts.
(ii)that the buy-back is not adjusted against share capital, but is adjusted firstly against the General Reserve account, then any remaining against the Retained Earnings account.
B.Assume now that the buy-back price per share was equal to $2.40 and that the company had no General Reserve account, and retained earnings of only $1,040,000. Further, assume that the company accounts for share buy-backs against retained earnings first.
Prepare journal entries to record the share buy-back.
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