Question
In: Accounting
National Supply’s shareholders’ equity included the following accounts at December 31, 2020: Shareholders' Equity Common stock,...
National Supply’s shareholders’ equity included the following
accounts at December 31, 2020:
| Shareholders' Equity | ||
| Common stock, 7 million shares at $1 par | $ | 7,000,000 |
| Paid-in capital—excess of par | 63,000,000 | |
| Retained earnings | 95,500,000 | |
Required:
1. 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, 2021 | Reacquired 440,000 shares at $12 per share. |
| February 17, 2022 | Reacquired 440,000 shares at $9.50 per share. |
| November 9, 2023 | Sold 305,000 shares at $11 per share (assume FIFO cost). |
2. Prepare the shareholders’ equity section of
National Supply’s balance sheet at December 31, 2023, assuming the
shares are (a) retired and (b) accounted for as treasury stock. Net
income was $18 million in 2021, $20 million in 2022, and $22
million in 2023. No dividends were paid during the three-year
period.
- Record the purchase of 440,000 shares at $12 per share on February 15, 2021 that are accounted for as treasury stock.
Note: Enter debits before credits.
|
Solutions
Expert Solution
Answer:
1-a)
| Date | Account titles and explanation | Debit | Credit |
| February 15, 2021 | Common stock (440,000*$1) | $440,000 | |
| Paid-in capital—excess of par (440,000*$9) | $3,960,000 | ||
| Retained earnings (5,280,000-440,000-3,960,000) | $880,000 | ||
| Cash (440,000*$12) | $5,280,000 | ||
| (To record treasury stock purchased) | |||
| February 17, 2022 | Common stock (440,000*$1) | $440,000 | |
| Paid-in capital—excess of par (440,000*$9) | $3,960,000 | ||
| Cash (440,000*$9.50) | $4,180,000 | ||
| Paid in capital- share repurchase ($0.50*440,000) | $220,000 | ||
| (To record treasury stock purchased) | |||
| November 9, 2023 | Cash (305,000*$11) | $3,355,000 | |
| Common stock (305,000*$1) | $305,000 | ||
| Paid-in capital—excess of par (3,355,000-305,000) | $3,050,000 | ||
| (To record treasury stock sold) | |||
Average paid in capital in excess of par= Total paid in capital in excess of par/Number of shares
= $63000000/7000000= $9
b)
| Date | Account titles and explanation | Debit | Credit |
| February 15, 2021 | Treasury stock (440,000*$12) | $5,280,000 | |
| Cash | $5,280,000 | ||
| (To record treasury stock purchased) | |||
| February 17, 2022 | Treasury stock (440,000*$9.50) | $4,180,000 | |
| Cash | $4,180,000 | ||
| (To record treasury stock purchased | |||
| November 9, 2023 | Cash (305000*$11) | $3,355,000 | |
| Retained earnings ($3660000-$3,355,000) | $305000 | ||
| Treasury stock (305,000*$12) | $3660000 | ||
| (To record treasury stock sold) | |||
2)
| (a) Retired | (b) Treasury stock | |
| Paid in capital: | ||
| Common stock- $1 par | $6,425,000 | $7,000,000 |
| Paid in capital- excess of par | $58,130,000 | 63,000,000 |
| Paid in capital- share repurchase | 220,000 | 0 |
| Retained earnings | $154,620,000 | $155,195,000 |
| Treasury stock | 0 | (5,800,000) |
| Total shareholders' equity | $219,395,000 | $219,395,000 |
Calculation of Part (a):
Common stock= $7,000,000-440,000-440,000+305,000= $6,425,000
Paid in capital- excess of par= $63,000,000-$3,960,000-$3,960,000+$3,050,000= $58,130,000
Retained earnings= $95,500,000+18,000,000+20,000,000+22,000,000-880,000= $154,620,000
Calculation of Part (b)
Retained earnings= $95,500,000+18,000,000+20,000,000+22,000,000-305,000= $155,195,000
Treasury stock= $5,280,000+$4,180,000-$3660000= $5,800,000
ekkarill92 answered 1 year agoRelated Solutions
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