Reacquired shares—comparison of retired shares and treasury shares L018-5 0 National Supply's shareholders' equity

Question

Reacquired shares—comparison of retired shares and treasury shares L018-5 0 National Supply's shareholders' equity included the following accounts at December 31 2020: Shareholders' Equity Common stock. 6 million shares at $1 par $ 6.000.000 Paid•in capital—excess of par Retained earnings 30.000.000 86.500.000 Page 1092 Required: I. 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, 2021 Reacquired 300.000 shares at $8 per share. February 17, 2022 Reacquired 300.000 shares at $5.50 per share. November 9. 2023 Sold 200.000 shares at $7 per share (assume FIFO cost). 2. Prepare the shareholders' equity section of National Supply's balance sheet at December 31.2023• assuming the shares are (a) retired and (b) accounted for as treasury stock. Net income was $14 million

Help In Homework · Accepted Answer

1-a) Date Account Titles and Explanation Debit Credit 15-Feb-21 Common Stock (300,000 shares *$1) $300,000 Paid in Capital in Excess Par ( 300,000 shares *$ 5) $1,500,000 Retained Earning ($2,400,000 - $300,000 -$1,500,000) $600,000 Cash (300,000 shares*$8 ) $2,400,000 ( To record retirement of 300,000 shares at $ 8) 17-Feb-22 Common Stock (300,000 shares *$1) $300,000 Paid in Capital in Excess Par ( 300,000 shares *$ 5) $1,500,000 Cash (300,000 shares*$ 5.50 ) $1,650,000 Paid in Capital from Share Purchases $150,000 ( $300,000 +$ 1,500,000 -$1,650,000) ( To record retirement of 300,000 shares at $ 5.50 ) 9-Nov-23 Cash ( 200,000 shares *$ 7) $1,400,000 Common Stock ( 200,000 shares *$ 1) $200,000 Paid in Capital in Excess Par ( 200,000 shares *$ 6) $1,200,000 ( To record sale of stock 200,000 shares ) 1-b) Date Account Titles and Explanation Debit Credit 15-Feb-21 Treasury Stock ( 300,000 shares *$ 8) $2,400,000 Cash $2,400,000 ( To record acquisition of 300,000 shares at $ 8) 17-Feb-22 Treasury Stock ( 300,000 shares *$ 5.50) $1,650,000 Cash $1,650,000 ( To record acquisition of 300,000 shares at $ 5.50 ) 9-Nov-23 Cash ( 200,000 shares *$ 7 ) $1,400,000 Retained Earnings ($1,600,000 -$ 1,400,000 ) $2,000,000 Treasury Stock ( 200,000 shares *$ 8 ) $1,600,000 ( To record 200,000 shares sold at $ 7 ) 2) Shareholders' Equity Section: Shareholder's Equity Retirement Treasury stock Paid in capital : common stock , $ 1 par $5,600,000 $6,000,000 paid in capital - excess of par

Shareholder's Equity	Retirement	Treasury stock
Paid in capital :
common stock , $ 1 par	$5,600,000	$6,000,000
paid in capital - excess of par	$28,200,000	$30,000,000
paid in capital - share repurchase	$150,000	$0
retained earnings	$130,900,000	$131,300,000
less: treasury stock -400,000 shares (at cost )		($2,450,000)
Total shareholder's equity	$164,850,000	$164,850,000

Workings:

1(A)
COMMON STOCK
		Beg. Bal	$6,000,000
15-Feb-18	$300,000	Nov 9,2020	$200,000
17-Feb-19	$300,000
End. Bal ( bal in fig)	$5,600,000
	$6,200,000		$6,200,000
Paid in capital in Excess of Par
		Beg. Bal	$30,000,000
15-Feb-18	$1,500,000	Nov 9,2020	$1,200,000
17-Feb-19	$1,500,000
End. Bal ( bal in fig)	$28,200,000
	$31,200,000		$31,200,000
Paid in capital from share purchases
		17-Feb-18	$150,000
End. Bal ( bal in fig)	$150,000

Retained earnings
		Beg. Bal	$86,500,000
15-Feb-18	$600,000	Dec 31,2018	$14,000,000
		Dec 31,2019	$15,000,000
		Dec 31,2020	$16,000,000
End. Bal ( bal in fig)	$130,900,000
	$131,500,000		$131,500,000
1(B)
COMMON STOCK
		Beg. Bal	$6,000,000
End. Bal ( bal in fig)	$6,000,000

Paid in capital in Excess of Par
		Beg. Bal	$30,000,000
End. Bal ( bal in fig)	$30,000,000

Treasury stock

15-Feb-18	$2,400,000	Nov 9,2020	$1,600,000
17-Feb-19	$1,650,000	End. Bal ( bal in fig)	$2,450,000
	$4,050,000		$4,050,000
Retained earnings
		Beg. Bal	$86,500,000
Nov 9,2020	$200,000	Dec 31,2018	$14,000,000
		Dec 31,2019	$15,000,000
End. Bal ( bal in fig)	$131,300,000	Dec 31,2020	$16,000,000
	$131,500,000		$131,500,000

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Reacquired shares—comparison of retired shares and treasury shares L018-5 0 National Supply's shareholders' equity included the following accounts at December 31 2020: Shareholders' Equity Common stock

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Archived Solution

1-a)
Date	Account Titles and Explanation	Debit	Credit
15-Feb-21	Common Stock (300,000 shares *$1)	$300,000
	Paid in Capital in Excess Par ( 300,000 shares *$ 5)	$1,500,000
	Retained Earning ($2,400,000 - $300,000 -$1,500,000)	$600,000
	Cash (300,000 shares*$8 )		$2,400,000
	( To record retirement of 300,000 shares at $ 8)
17-Feb-22	Common Stock (300,000 shares *$1)	$300,000
	Paid in Capital in Excess Par ( 300,000 shares *$ 5)	$1,500,000
	Cash (300,000 shares*$ 5.50 )		$1,650,000
	Paid in Capital from Share Purchases		$150,000
	( $300,000 +$ 1,500,000 -$1,650,000)
	( To record retirement of 300,000 shares at $ 5.50 )

9-Nov-23	Cash ( 200,000 shares *$ 7)	$1,400,000
	Common Stock ( 200,000 shares *$ 1)		$200,000
	Paid in Capital in Excess Par ( 200,000 shares *$ 6)		$1,200,000
	( To record sale of stock 200,000 shares )

1-b)

Date	Account Titles and Explanation	Debit	Credit
15-Feb-21	Treasury Stock ( 300,000 shares *$ 8)	$2,400,000
	Cash		$2,400,000
	( To record acquisition of 300,000 shares at $ 8)
17-Feb-22	Treasury Stock ( 300,000 shares *$ 5.50)	$1,650,000
	Cash		$1,650,000
	( To record acquisition of 300,000 shares at $ 5.50 )
9-Nov-23	Cash ( 200,000 shares *$ 7 )	$1,400,000
	Retained Earnings ($1,600,000 -$ 1,400,000 )	$2,000,000
	Treasury Stock ( 200,000 shares *$ 8 )		$1,600,000
	( To record 200,000 shares sold at $ 7 )