In: Accounting
National Supply’s shareholders’ equity included the following
accounts at December 31, 2017:
Shareholders' Equity | ($ in millions) | |
Common stock, 4 million shares at $1 par | $ | 4,000,000 |
Paid-in capital—excess of par | 16,000,000 | |
Retained earnings | 73,000,000 | |
Required:
1a. National Supply reacquired shares of its common stock in two
separate transactions and later sold shares. Prepare the entries
for each of the transactions under each of two separate
assumptions: the shares are (a) retired and (b) accounted for as
treasury stock.
February 15, 2018 | Reacquired 140,000 shares at $7 per share. |
February 17, 2019 | Reacquired 140,000 shares at $4.50 per share. |
November 9, 2020 | Sold 80,000 shares at $6 per share (assume FIFO cost). |
1b. Prepare the shareholders’ equity section of
National Supply’s balance sheet at December 31, 2020, assuming the
shares are (a) retired and (b) accounted for as treasury stock. Net
income was $12 million in 2018, $13 million in 2019, and $14
million in 2020. No dividends were paid during the three-year
period.
1a)
Retired
Date | Particulars | Debit | Credit |
Feb 15 | Common stock | 140000 | |
Paid in capital - excess of par | 560000 | ||
Retained earnings | 280000 | ||
Cash | 980000 | ||
Feb 17 | Common stock | 140000 | |
Paid in capital - excess of par | 560000 | ||
Paid in capital - Share repurchase | 70000 | ||
Cash | 630000 | ||
Nov 9 | Cash a/c | 480000 | |
common stock | 80000 | ||
Paid in capital- excess of par | 400000 |
Treasury Stock
Date | Particulars | Debit | Credit |
Feb 15 | Treasury stock | 980000 | |
cash | 980000 | ||
Feb 17 | Treasury stock | 630000 | |
Cash | 630000 | ||
Nov 19 | Cash a/c | 480000 | |
Retained earning | 80000 | ||
Treasury stock | 560000 |
2b)
Balance sheet
Particulars | Retired | Treasury stock |
Paid in capital | ||
common stock (note 1) | 3800000 | 4000000 |
Paid in capital excess of par | 15280000 | 16000000 |
Paid in cap - share repurchase | 70000 | 0 |
Retained earning (note 2) | 111720000 | 111920000 |
Less- treasury stock | 0 | (1050000) |
TOTAL SHAREHOLDER EQUITY | 130870000 | 130870000 |
Note 1) Common stock calculation after effect of journal entries
Retired = 4000000 - 140000 - 140000 + 80000 = 3800000
Treasury stock = 4000000
Note 2 Retained earning calculation
Retired = 73000000-280000+12000000+13000000+14000000 = 111720000
Treasury = 73000000-80000+12000000+13000000+14000000 = 111920000