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.

Answer 1