*S. Stockholders’ Equity Statement.
2. When this statement is presented, a retained earnings statement is not
necessary because the retained earnings column explains the changes
in this account.
*T. Book Value Per Share.
2. When there is only one class of stock outstanding, the formula for
the number of common shares outstanding.
3. Book value per share may not equal market value per share because
book value is generally based on recorded costs while market value
reflects the subjective judgments of stockholders and prospective
investors about a company’s potential for future earnings and dividends.
IFRS
A Look at IFRS
The accounting for transactions related to stockholders’ equity, such as issuance
of shares and purchase of treasury stock, are similar under both IFRS and
GAAP. Major differences relate to terminology used, introduction of items such
as revaluation surplus, and presentation of stockholders’ equity information.
KEY POINTS
Under IFRS, the term reserves is used to describe all equity accounts other
than those arising from contributed (paid-in) capital. This would include, for
example, reserves related to retained earnings, asset revaluations, and fair
value differences.
Many countries have a different mix of investor groups than in the United
States. For example, in Germany, financial institutions like banks are not
only major creditors of corporations but often are the largest corporate
stockholders as well. In the United States, Asia, and the United Kingdom,
many companies rely on substantial investment from private investors.
There are often terminology differences for equity accounts. The following
GAAP
IFRS
Common stock
Share capital—ordinary
Stockholders
Shareholders
Par value
Nominal or face value
Authorized stock
Authorized share capital
Preferred stock
Share capital—preference
Paid-in capital
Issued/allocated share capital
Paid-in capital in excess of par—common
stock
Share premium—ordinary
Paid–in capital in excess of par—preferred
stock
Share premium—preference
Retained earnings
Retained earnings or Retained
Profits
Retained earnings deficit
Accumulated losses
Accumulated other comprehensive income
General reserve and other reserve
accounts
equity accounts are to be affected. Therefore, it could be shown as an
increase to a contra equity account (Treasury Stock) or a decrease to
retained earnings or share capital.
A major difference between IFRS and GAAP relates to the account
The accounting related to prior period adjustment is essentially the same
equity, owners’ equity, capital and reserves, and shareholders’ funds.
The income statement using IFRS is called the statement of comprehensive
income. A statement of comprehensive income is presented in a one- or
two-statement format. The single-statement approach includes all items of
The computations related to earnings per share are essentially the same
under IFRS and GAAP.
LOOKING TO THE FUTURE
The IASB and the FASB are currently working on a project related to financial
convergence will deal with highly technical changes beyond the scope of this
textbook.
20 MINUTE QUIZ
Circle the correct answer.
True/False
1. The cost method derives its name from the fact that the Treasury Stock account is
maintained at the cost of shares purchased.
True False
2. When treasury stock is sold for an amount greater than cost, the difference should be
Statement.
True False
3. Stockholders’ liability is generally unlimited; therefore, creditors have recourse to
True False
4. Retained earnings is net income retained in a corporation and is often referred to as
earned capital.
True False
True False
True False
True False
8. Dividends in arrears are not considered a liability because no obligation exists until the
True False
9. A prior period adjustment always includes a credit to Retained Earnings.
True False
and date of payment.
True False
Multiple Choice
1. Par value
d. is established for a share of stock after it is issued.
2. If a company has 900,000 shares of common stock authorized, and has 750,000 shares
a. $870,000.
b. $750,000.
c. $720,000.
d. $150,000.
3. A company purchases 1,500 shares of its $25 par value stock at $35 per share. It then
a credit to
a. Cash for $2,500.
b. Treasury Stock for $2,500.
c. Retained Earnings for $2,500.
d. Paid-in Capital from Treasury Stock for $2,500.
4. Preferred stock would least likely have which characteristic?
d. Preference as to dividends.
5. A company had outstanding 80,000 shares of $10 par value common stock. During the
period a 10% stock dividend was declared and distributed. The market value was $25 a
share. As a result of this stock dividend, retained earnings should increase (decrease) by
a. $0.
b. $(80,000).
c. $(200,000).
d. $80,000.
ANSWERS TO QUIZ
True/False
Multiple Choice