Question

Identifying and Analyzing Financial Statement Effects of Stock Issuance and Repurchase

On January 1, 2016, Bartov Company issues 5,000 shares of $100 par value preferred stock at $250 cash per share. On March 1, the company repurchases 5,000 shares of previously issued $1 par value common stock at $83 cash per share.

a. Using the financial statement effects template, illustrate the effects of these two transactions.

Use negative signs with answers when appropriate. When applicable, enter total amount for contributed capital.

Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital - Contra Equity 1/1/16: Issued preferred stock. Answer + $Answer = Answer + Answer + Answer - Answer 3/1/16: Repurchase common stock. Answer + Answer = Answer + Answer + Answer - Answer

Income Statement Revenue - Expenses = Net Income Answer - Answer = Answer Answer - Answer = Answer

b. Prepare the journal entries for the two transactions.

General Journal
Date	Description		Debit	Credit
1/1/16	AnswerAdditional paid in capitalCashCommon stockTreasury stock		Answer	Answer
	Preferred stock		Answer	Answer
	AnswerAdditional paid in capitalCashCommon stockTreasury stock		Answer	Answer
3/1/16	AnswerAdditional paid in capitalCashCommon stockTreasury stock		Answer	Answer
	AnswerAdditional paid in capitalCashCommon stockTreasury stock		Answer	Answer

c. Post the journal entries from b to the related T-accounts.

Cash
	Answer	Answer

Preferred Stock
	Answer	Answer

Treasury Stock
	Answer	Answer

Additional Paid in Capital
	Answer	Answer

Answer 1

Solution a:

Balance Sheet

Income Statement

Transaction

Cash Asset

+

Noncash Assets

=

Liabilities

+

Contrib. Capital

+

Earned Capital

-

Contra Equity

Revenue

-

Expenses

=

Net Income

1/1/16: Issued preferred stock.

$1,250,000.00

+

=

+

$1,250,000.00

+

-

-

=

3/1/16: Repurchase common stock.

-$415,000.00

+

=

+

+

-

$415,000.00

-

=

Solution b:

General Journal
Date	Description	Debit	Credit
1-Jan-16	Cash Dr	$1,250,000.00
	To Preferred stock		$500,000.00
	To Additional Paid in capital		$750,000.00
	(To record issue of preferred stock)
1-Mar-16	Treasury Stock Dr	$415,000.00
	To Cash		$415,000.00
	(To record purchase of treasury stock)

solution c:

Cash
1-Jan-16	$1,250,000.00	1-Mar-16	$415,000.00

Preferred Stock
		1-Jan-16	$500,000.00

Treasury Stock
1-Mar-16	$415,000.00

Additional Paid in Capital
		1-Jan-16	$750,000.00