When all the forfeited shares are not reissued, the forfeited shares account will also show credit balance equal to gain on forfeiture of shares not yet reissued
Losson the reissue of shares cannot be more than the gain on forfeiture of those shares
At the time of forfeiture of shares, the securities premium is debited along with share capital when the premium has not been received
When forfeited shares are issued at a premium, the premium amount is credited to the capital reserve account
Answer is Wrong!
Answer is Right!
The correct answer is: B. Loss on the reissue of shares cannot be more than the gain on forfeiture of those shares.
When shares are forfeited, the company records a gain equal to the amount of the original subscription price that was not paid. If the shares are later reissued at a price below the original subscription price, the company records a loss. However, the loss cannot be more than the gain on forfeiture. This is because the company cannot lose more money than it originally received from the sale of the shares.
Here is a more detailed explanation of each option:
- A. When all the forfeited shares are not reissued, the forfeited shares account will also show credit balance equal to gain on forfeiture of shares not yet reissued. This is true. When shares are forfeited, the company records a gain equal to the amount of the original subscription price that was not paid. This gain is credited to the forfeited shares account. If the shares are not later reissued, the forfeited shares account will show a credit balance equal to the gain on forfeiture.
- B. Loss on the reissue of shares cannot be more than the gain on forfeiture of those shares. This is false. As explained above, the loss on the reissue of shares cannot be more than the gain on forfeiture. However, the loss can be greater than the gain if the shares are reissued at a price below the original subscription price.
- C. At the time of forfeiture of shares, the securities premium is debited along with share capital when the premium has not been received. This is true. When shares are forfeited, the company records a gain equal to the amount of the original subscription price that was not paid. This gain is credited to the forfeited shares account. If the securities premium has not been received, the company also debits the securities premium account.
- D. When forfeited shares are issued at a premium, the premium amount is credited to the capital reserve account. This is true. When shares are forfeited, the company records a gain equal to the amount of the original subscription price that was not paid. This gain is credited to the forfeited shares account. If the shares are later reissued at a premium, the premium amount is credited to the capital reserve account.