Wattle Ltd decided to repurchase 250 000 of its ordinary shares under a buy-back
ID: 2474589 • Letter: W
Question
Wattle Ltd decided to repurchase 250 000 of its ordinary shares under a buy-back scheme for $5.70 per share. At the date of the buy-back, the equity of Wattle Ltd consisted of:
Share capital (3 000 000 shares fully paid)
General reserve
Retained earnings
$
6 000 000
680 000
1 230 000
Therefore, the highlighted entry is also correct.
as it is a new issue of debentures.The costs of the buy-back scheme amounted to $3800.
Required
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.
Share capital (3 000 000 shares fully paid)
General reserve
Retained earnings
$
6 000 000
680 000
1 230 000
Explanation / Answer
WATTLE LTD
General Journal
A.
(i) General Reserve Dr 464 400
Retained Earnings Dr 464 400
Share Capital Dr 500 000
Cash Cr 1 428 800
(Repurchase of 250 000 ordinary shares
under a buy-back scheme plus costs)
(ii) General Reserve Dr 680 000
Retained Earnings Dr 748 800
Cash Cr 1 428 800
(Repurchase of 250 000 ordinary shares
under a buy-back scheme plus costs)
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