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In: Accounting

The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts...

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, 380 million shares at $1 par $ 380
Paid-in capital—excess of par 3,040
Paid-in capital—share repurchase 1
Retained earnings 2,800


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 6 million shares at $11 per share.

On July 9, 2018, the corporation sold 2 million shares at $13 per share.

On November 14, 2020, the corporation sold 2 million shares at $8 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.

Solutions

Expert Solution

Date Accounts Title Dr Cr
Retired Stock
Common stock (6*1) $6
paid in capital in excess of par (3040/380*6) 48
Paid in capital-share repurchase 1
Retained Eranings (bal fig) $11
Cash $66
Feb 5 2018 Treasury Stock $66
Cash (6*11) $66
(purchase of treasury stock)
Retired Stock
Cash (2*13) $26
Common stock (2*1) 2
paid in capital in excess of par 24
July 9 2018 Cash (2*13) $26
Paid in capital -Treasury stock $4
Treasury Stock (2*11) $22
Retired Stock
Cash (2*8) 16
Common stock (2*1) 2
paid in capital in excess of par 12
Nov 14 2020 Cash (2*8) 16
Paid in capital in excess-Treasury stock 4
Retained Earnings 2
Treasury Stock (2*11) 22
Ans 2
Retirement Treasury stock
Shareholders' Equity ($ in millions)
Common stock, 380 million shares at $1 par 378 380
Paid-in capital—excess of par 3028 3,040
(3040-48+12+24)
Paid-in capital—share repurchase 0 0
Retained earnings 2789 2798
(2800-11) (2800-2)
Less: Treasury stock 0 -22
Total stockholder Equity 6195 6196

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