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Exam Code: SSP-ARCH

Exam Name: Secure Software Practitioner - Architect

Certification Provider: ISC

Related Certification: Secure Software Practitioner - Architect

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NEW QUESTION: 1
At December 31, Year 1, an entity had the following equity accounts:

Each of the 40,000 ordinary shares outstanding was issued at a price of US $26. On January 2, Year 2, 2,000 shares were reacquired for US $30 per share. The cost method is used in accounting for these treasury shares. Which of the following correctly describes the effect of the acquisition of the treasury shares?
A. Total equity is reduced by US $60,000.
B. Ordinary shares is reduced by US $20,000.
C. Share premium from issuance of ordinary shares is reduced by US $32,000.
D. The retained earnings account balance is reduced by US $8,000.
Answer: A
Explanation:
Using the cost method, the journal entry to record the acquisition of the treasury shares includes a debit to treasury shares for US $60,000. The balance of the treasury shares account is classified as a contra equity item. Thus, the acquisition of the treasury shares reduces total equity by US $600002.000 shares x $30).


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