Question

Problem 18-3 Reacquired shares-comparison of retired shares and treasury shares [LO18-5]

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

Shareholders' Equity	($ in millions)
Common stock, 9 million shares at $1 par	$	9,000,000
Paid-in capital—excess of par		63,000,000
Retained earnings		92,500,000

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 400,000 shares at $10 per share.
February 17, 2019	Reacquired 400,000 shares at $7.50 per share.
November 9, 2020	Sold 275,000 shares at $9 per share (assume FIFO cost).

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 $16 million in 2018, $18 million in 2019, and $20 million in 2020. No dividends were paid during the three-year period.

No	Date	General Journal	Debit	Credit
1	February 15, 2018	Common stockselected answer correct	400,000selected answer correct
		Paid-in capital—excess of parselected answer correct	2,800,000selected answer correct
		Retained earnings selected answer correct	800,000selected answer correct
		Cash selected answer correct		4,000,000selected answer correct
2	February 17, 2019	Common stock selected answer correct	400,000selected answer correct
		Paid-in capital—excess of par selected answer correct	2,800,000selected answer correct
		Paid-in capital—share repurchase selected answer correct		200,000selected answer correct
		Cash selected answer correct		3,000,000selected answer correct
3	November 09, 2020	Cash selected answer correct	2,475,000selected answer correct
		Common stock selected answer correct		275,000selected answer correct
		Retained earnings selected answer incorrect		2,200,000selected answer correct

No	Date	General Journal	Debit	Credit
1	February 15, 2018	Treasury stockselected answer correct	4,000,000selected answer correct	not attempted
		Cashselected answer correct	not attempted	4,000,000selected answer correct
2	February 17, 2019	Treasury stockselected answer correct	3,000,000selected answer correct	not attempted
		Cashselected answer correct	not attempted	3,000,000selected answer correct
3	November 09, 2020	Cashselected answer correct	2,475,000selected answer correct	not attempted
		Investment in Leasco International stocks elected answer incorrect	275,000selected answer correct	not attempted
		Treasury stockselected answer correct	not attempted	2,750,000selected answer correct

• Req 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 $16 million in 2018, $18 million in 2019, and $20 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: ？ ？？？？？ Paid-in capital—excess of parselected answer correct ？ $63,000,000selected answer correct Common stockselected answer correct ？ 9,000,000selected answer correct Retained earningsselected answer correct ？ ？ Paid-in capital—share repurchaseselected answer correct ？ 0selected answer correct Less: Treasury stockselected answer correct ？？？？？ 4,250,000selected answer correct Total shareholders’ equity $0 $67,750,000

Answer 1

1A

No	Date	General Journal	Debit	Credit
1	February 15, 2018	Common stock (400000 x $1)	400000
		Paid-in capital-excess of par (400000 x $63000000/9000000)	2800000
		Retained earnings	800000
		Cash (400000 x $10)		4000000
2	February 17, 2019	Common stock (400000 x $1)	400000
		Paid-in capital-excess of par (400000 x $63000000/9000000)	2800000
		Paid-in capital-share repurchase		200000
		Cash (400000 x $7.50)		3000000
3	November 09, 2020	Cash (275000 x $9)	2475000
		Common stock (275000 x $1)		275000
		Paid-in capital-excess of par		2200000

1B

No	Date	General Journal	Debit	Credit
1	February 15, 2018	Treasury stock	4000000
		Cash (400000 x $10)		4000000
2	February 17, 2019	Treasury stock	3000000
		Cash (400000 x $7.50)		3000000
3	November 09, 2020	Cash (275000 x $9)	2475000
		Retained earnings	275000
		Treasury stock (275000 x $10)		2750000

2.

Shareholders' Equity	Retirement	Treasury Stock
Paid-in capital:
Common stock	8475000	9000000
Paid-in capital-excess of par	59600000	63000000
Paid-in capital-share repurchase	200000	0
Retained earnings	145700000	146225000
Less: Treasury stock	0	4250000
Total shareholders' equity	213975000	213975000