ACCA Knowledge Level Treasury Shares and Equity Section — practice questions

Explore 2 free Treasury Shares and Equity Section questions in ACCA Knowledge Level Financial Accounting. Open each question or exercise to read its content, reference answers and available explanation.

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Treasury Shares and Equity Section questions and exercises with answers

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Under the cost method, a corporation purchases 1,000 treasury shares at $45 per share. What is the debit to the treasury shares account?Read the answer and worked solution →Total shareholders' equity equals total paid-in capital plus retained earnings, less which item?Read the answer and worked solution →

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Under the cost method, a corporation purchases 1,000 treasury shares at $45 per share. What is the debit to the treasury shares account?

$10,000
$45,000
$45
$1,000

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Correct answer: B. $45,000

1. Treasury shares are recorded at cost: number of shares × purchase price. 2. Shares = 1,000; price = $45. 3. $1{,}000 \times \$45 = \$45{,}000$. 4. Par value plays no part in the treasury share entry, so the debit is $45,000. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Treasury Stock", p.251_

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Total shareholders' equity equals total paid-in capital plus retained earnings, less which item?

Cash dividends declared
Treasury shares
Preference share premium
Stock dividends distributable

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Correct answer: B. Treasury shares

1. Paid-in capital is the sum of share capital, share premiums, and paid-in capital from treasury share sales. 2. Retained earnings is added to paid-in capital. 3. Treasury shares are held by the company, not by outside owners, so their cost is deducted. 4. Total shareholders' equity = total paid-in capital + retained earnings − treasury shares. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.7 "Stockholders' Equity Section of the Balance Sheet", p.257_