Question

In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2021 to discontinue accounting for reacquired shares as treasury stock. Instead, shares repurchased will be viewed as having been retired, reassuming the status of unissued shares. As part of the change, treasury shares held were reclassified as retired stock. At December 31, 2020, UMC's balance sheet reported the following shareholders' equity:

	($ in millions)
Common stock, $1 par	$	195
Paid-in capital—excess of par		975
Retained earnings		996
Treasury stock (4 million shares at cost)		(33	)
Total shareholders’ equity	$	2,133

b. Prepare the journal entry to effect the reclassification of treasury shares as retired shares.

Answer 1

b. Prepare the journal entry to effect the reclassification of treasury shares as retired shares.

                                                                          ($ in millions)

Event	General Journal	Debit	Credit
1	Common stock	$4
	Paid-in capital—excess of par	$20
	Retained earnings	$9
	Treasury stock		$33

Explanation:-

Common Stock = 4 million shares * $1 = $4 million

Paid-in capital—excess of par = $975 million/195 million shares = $5

$5 * 4 million shares = $20 million