Question

National Supply’s shareholders’ equity included the following accounts at December 31, 2017:

Shareholders' Equity	($ in millions)
Common stock, 3 million shares at $1 par	$	3,000,000
Paid-in capital—excess of par		9,000,000
Retained earnings		71,500,000

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, 2018	Reacquired 120,000 shares at $6 per share.
February 17, 2019	Reacquired 120,000 shares at $3.50 per share.
November 9, 2020	Sold 65,000 shares at $5 per share (assume FIFO cost).

REQUIRED 1A

Feb 15 Record the repurchase of shares on February 15, 2018 for retirement.

Feb 17 Record the repurchase of shares on February 17, 2019 for retirement.

Nov 9 Record the sale of shares on November 9, 2020.

No	Date	General Journal	Debit	Credit
1	February 15, 2018	Common stock
		Paid-in capital—excess of par
		Retained earnings
		Cash
2	February 17, 2019	Common stock
		Paid-in capital—excess of par
		Paid-in capital—share repurchase
		Cash
3	November 09, 2020	Cash
		Common stock
		Paid-in capital—excess of par

REQUIRED 1B

Feb 15 Record the repurchase of shares on February 15, 2018 and accounted as treasury stock.

Feb 17 Record the repurchase of shares on February 17, 2019 and accounted as treasury stock.

Nov 09 Record resale of treasury shares on November 9, 2020 (assumes FIFO cost).

No	Date	General Journal	Debit	Credit
1	February 15, 2018	Treasury stock
		Cash
2	February 17, 2019	Treasury stock
		Cash
3	November 09, 2020	Cash
		Retained earnings
		Treasury stock

REQUIRED 2

Prepare the shareholders’ equity section of National Supply’s balance sheet at December 31, 2020, assuming the shares are (a) retired and (b) accounted for as treasury stock. Net income was $11 million in 2018, $12 million in 2019, and $13 million in 2020. No dividends were paid during the three-year period. (Enter your answers in whole dollars.)

	Shareholders’ Equity Retirement Treasury stock Paid-in capital: Common stock Paid-in capital—excess of par Paid-in capital—share repurchase Retained earnings Less: Treasury stock Total shareholders’ equity $0 $0

Answer 1

Answer 1-a.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
15-Feb-18	Common Stock	120,000.00		120,000 Shares X $1
	Paid in Capital - Excess of Par	360,000.00		120,000 Shares X $3
	Retained Earnings	240,000.00		120,000 Shares X $2
	Cash		720,000.00	120,000 Shares X $6
	(To record the purchase of common Stock)
17-Feb-19	Common Stock	120,000.00		120,000 Shares X $1
	Paid in Capital - Excess of Par	300,000.00		120,000 Shares X $2.50
	Cash		420,000.00	120,000 Shares X $3.50
	(To record the purchase of common Stock)
9-Nov-20	Cash	325,000.00		65,000 Shares X $5
	Common Stock		65,000.00	65,000 Shares X $1
	Paid in Capital - Share Repurchase		260,000.00	65,000 Shares X $4
	(To record the sale of common Stock)
Answer 1-b.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
15-Feb-18	Treasury Stock	720,000.00		120,000 Shares X $6
	Cash		720,000.00	120,000 Shares X $6
	(To record the purchase of Treasury Stock)
17-Feb-19	Treasury Stock	420,000.00		120,000 Shares X $3.50
	Cash		420,000.00	120,000 Shares X $3.50
	(To record the purchase of Treasury Stock)
9-Nov-20	Cash	325,000.00		65,000 Shares X $5
	Retained Earnings	65,000.00		65,000 Shares X $1
	Treasury Stock		390,000.00	65,000 Shares X $6
	(To record the sale of Treasury Stock)

Answer 2.
Shareholders' Equity	Retirement	Treasury stock
Paid-in Capital:
Common Stock	2,825,000.00	3,000,000.00
Paid in Capital - Excess of Par	8,340,000.00	9,000,000.00
Paid in Capital - Share Repurchase	260,000.00	-
Retained Earnings	107,260,000.00	107,435,000.00
Less: Treasury Stock	-
Total Shareholders' Equity	118,685,000.00	119,435,000.00