Profit Distribution and Legal Restrictions

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What happens to the retained earnings account immediately after a quasi-reorganization?

It remains the same as it was before

It has a debit balance equal to the writedown of the assets

It is frozen and dated and subsequent transactions will be shown separately

It has a zero balance (correct)

When shares with par value are sold, where are the proceeds credited?

Income

Retained earnings

Share premium

Share capital account to the extent of the par value of the shares issued (correct)

What is the basis for measuring shares issued for a noncash consideration?

Fair value of the shares issued (correct)

Fair value of the noncash consideration received

Carrying amount of the noncash consideration received

Par value of the shares issued

What is the initial measurement of shares issued to extinguish a financial liability?

Fair value of the shares issued Signup and view all the answers

What is the least appropriate basis for recording a transaction when shares are issued for services?

Par value of the shares issued Signup and view all the answers

When shares without par value are sold, where is the excess proceeds over stated value credited?

Share premium Signup and view all the answers

Where would a gain from retirement of treasury shares be credited?

Share premium Signup and view all the answers

What would be debited in case of a loss on retirement of treasury shares?

Share premium from treasury shares and then retained earnings Signup and view all the answers

What is a possible result of treasury share transactions?

May increase but not decrease retained earnings Signup and view all the answers

How should deposits on subscription to a proposed increase in share capital be reported?

As part of shareholders' equity Signup and view all the answers

What is true concerning subscriptions receivable from sale of share capital?

Should be reflected as deduction from related subscribed share capital Signup and view all the answers

How should transaction costs directly attributable to the issuance of new shares be treated?

Deducted from equity Signup and view all the answers

What is the correct treatment of costs related to the stock market listing of shares?

Deducted from equity, net of any related income tax benefit Signup and view all the answers

What is not included in transaction costs that are directly attributable to the issuance of new shares?

Road show presentation Signup and view all the answers

How should joint costs related to the concurrent listing and issuance of new shares, and listing of old existing shares be treated?

The joint costs should be allocated between the newly issued and listed shares and the newly listed old existing shares prorata based on the number of shares outstanding Signup and view all the answers

When collectibility is reasonably assured, how should the excess of the subscription price over the stated value of the no-par subscribed share capital be recorded?

Share premium when the subscription is recorded Signup and view all the answers

What account or accounts should be debited when treasury shares are purchased for more than par value?

Retained earnings Signup and view all the answers

What is the correct treatment of costs related to the public offering of shares?

Deducted from equity, net of any related income tax benefit Signup and view all the answers

What is a legal restriction related to profit distribution?

The amount distributed must be in compliance with the laws governing corporations Signup and view all the answers

What is the primary purpose of a quasi-reorganization?

To eliminate a deficit Signup and view all the answers

How are carrying amounts measured in a quasi-reorganization?

At fair value Signup and view all the answers

What is the purpose of using equity reserves under international accounting standards?

To benefit shareholders rather than creditors Signup and view all the answers

What is a consequence of a quasi-reorganization?

A writeup of assets and a writedown of retained earnings Signup and view all the answers

What is a condition for distributing capital from a donated asset?

The amount distributed can never exceed the net income reported for the year Signup and view all the answers

What happens to asset and shareholders' equity, respectively, as a result of a share split?

Increase and Increase Signup and view all the answers

What happens to share premium and retained earnings, respectively, as a result of a share split?

No effect and No effect Signup and view all the answers

What does the term 'residual owner' mean in relation to shareholders?

They bear the ultimate risks and receive the benefits of ownership Signup and view all the answers

Who are the residual interest holders in a corporation?

Ordinary shareholders Signup and view all the answers

What are treasury shares?

Issued but not outstanding shares Signup and view all the answers

Which of the following is not a method that may be used to account for treasury shares?

Constructive retirement method Signup and view all the answers