In: Accounting
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.
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 |