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The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts...

The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017:

Shareholders' Equity ($ in millions)
Common stock, 340 million shares at $1 par $ 340
Paid-in capital—excess of par 2,720
Paid-in capital—share repurchase 1
Retained earnings 2,400


Required:
1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions. Prepare the entries for both the purchase and subsequent resale of the shares assuming the shares are (a) retired and (b) viewed as treasury stock.

  1. On February 5, 2018, TNL Systems purchased 8 million shares at $12 per share.
  2. On July 9, 2018, the corporation sold 2 million shares at $14 per share.
  3. On November 14, 2020, the corporation sold 2 million shares at $9 per share.


2. Prepare the shareholders’ equity section of TNL Systems’ balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018–2020 was distributed to shareholders as cash dividends.

(1A Journal Entries):

Record the purchase of 8 million shares at $12 per share assuming the shares are retired.

Record the sale of 2 million shares at $14 per share.

Record the sale of 2 million shares at $9 per share.

(1B Journal Entries):

Record the sale of 2 million shares at $9 per share.

Record the sale of 2 million shares at $14 per share

Record the sale of 2 million shares at $9 per share.

Solutions

Expert Solution

(1A Journal Entries): Amount in Millions
Date Account Titles And Explanation Debit Credit

February 15, 2018
Retired Common stock (8 Million shares x $1 par) $                     8.00
Paid-in capital—excess of par (8 Million shares x $8) $                   64.00
Retained earnings (difference) $                   24.00
                         Cash (8 Million Shares x $12) $                   96.00

Average paid-in capital-excess of par is $8 per share ($2720 ÷ 340 shares)
July 9, 2018 Cash (2 Million Shares x $14) $                   28.00
               Common stock (2 Million shares x $1 par) 2
               Paid-in capital—excess of par (difference) $                   26.00
Nov 14, 2020 Cash (2 Million Shares x $9) $                   18.00
               Common stock (2 Million shares x $1 par) 2
               Paid-in capital—excess of par (difference) $                   16.00
(1B Journal Entries):
Accounted for as treasury stock

February 15, 2018

Treasury stock (8 million shares x $12)

 $                   96.00
                         Cash (8 Million Shares x $12) $                   96.00
July 9, 2018 Cash (2 Million Shares x $14) $                   28.00
                     Retained Earnings $                     4.00

                     Treasury stock (2 million shares x $12)

 $                   24.00
Nov 14, 2020 Cash (2 Million Shares x $9) $                   18.00
Retained Earnings $                     6.00

                     Treasury stock (2 million shares x $12)

 $                   24.00

ekkarill92 answered 5 months ago
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