Question

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, 310 million shares at $1 par	$	310
Paid-in capital—excess of par		2,790
Paid-in capital—share repurchase		1
Retained earnings		2,100

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.

On February 5, 2018, TNL Systems purchased 8 million shares at $12 per share.

On July 9, 2018, the corporation sold 2 million shares at $14 per share.

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.

Answer 1

1.a.In the books of TNL Systems Inc:

Date	Account Titles	Debit	Credit
		$	$
Feb 5, 2018	Common Stock ( 8,000,000 x $ 1)	8,000,000
	Paid in Capital : Excess of Par ( 2,790 / 310 * 8,000,000 )	72,000,000
	Paid-in Capital : Share Repurchase	1,000,000
	Retained Earnings ( Balancing Amount )	15,000,000
	Cash		96,000,000
July 9, 2018	Cash	28,000,000
	Common Stock ( 2,000,000 x $ 1)		2,000,000
	Paid-in Capital : Excess of Par		26,000,000
Nov 14, 2020	Cash	18,000,000
	Common Stock ( 2,000,000 x $ 1)		2,000,000
	Paid-in Capital : Excess of Par		16,000,000

b. In the books of TNL Systems Inc. :

Date	Account Titles	Debit	Credit
		$	$
Feb 5, 2018	Treasury Stock	96,000,000
	Cash		96,000,000
July 9, 2018	Cash	28,000,000
	Treasury Stock		24,000,000
	Paid-in Capital: Treasury Stock		4,000,000
Nov 14, 2020	Cash	18,000,000
	Paid -in Capital : Treasury Stock	4,000,000
	Paid-in Capital : Share Repurchase	1,000,000
	Retained Earnings ( Balancing Amount)	1,000,000
	Treasury Stock		24,000,000

2. a.

TNL Systems Inc.
Balance Sheet ( Partial)
December 31, 2020
Stockholders' Equity	$ in millions
Common Stock, 306 million shares at $ 1 par	306
Paid-in Capital : Excess of Par	2,760
Retained Earnings	2,085
Total Stockholders Equity	5,151

b.

TNL Systems Inc.
Balance Sheet ( Partial )
December 31, 2020
Stockholders Equity	$ in millions
Common Stock, 310 million shares at $ 1 par	310
Paid in Capital : Excess of Par	2,790
Retained Earnings	2,099
Less: Treasury Stock ( at cost)	(48)
Total Stockholders' Equity	5,151