Question

When shares are purchased or redeemed and cancelled, guidelines have been established for the sequence of accounts to adjust when allocating the cost. Which of the following is the first account to be adjusted?

a) a Contributed Surplus account created from a previous reacquisition of the same class of shares
b) the Share Capital account
c) Retained Earnings
d) Accumulated Other Comprehensive Income

Answer 1

The first account to be adjusted when shares are redeemed is the Contributed Surplus account (option A) that was established from a previous reacquisition of the same class of shares.

Step-by-step explanation:

When shares are purchased or redeemed and cancelled, the sequence of accounts to adjust when allocating the cost typically follows specific guidelines. For this scenario, the first account to be adjusted is a) a Contributed Surplus account created from a previous reacquisition of the same class of shares. This is often the first source used to absorb the cost of redeeming the shares before other accounts such as Share Capital, Retained Earnings, or Accumulated Other Comprehensive Income are adjusted.