Analyzing Common Stock Reacquisition Methods Lakers Inc. reacquired a number of its own shares in one transaction in December of 2020. (Assume no previous reacquisitions of stock.) Lakers Inc. could account for the reacquisition transaction using two different methods, illustrated as Option One and Option Two. Stockholders’ Equity Section at Dec. 31, 2020 Option One Option Two Common stock, $1 par, 280,000 shares authorized $22,400 $28,000 Paid-in capital in excess of par 336,000 420,000 Retained earnings 86,800 98,000 Treasury stock, 5,600 shares 0 (100,800) Total stockholders’ equity $445,200 $445,200 Required a. Identify which method the company used in Option One to account for the reacquisition of common stock. AnswerDirect Retirement MethodTreasury Stock Method Recreate the accounting entry to record the reacquisition of common stock. Note: List multiple debits (when applicable) in alphabetical order and list multiple credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. Dec. 31, 2020 AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer b. Identify which method the company used in Option Two to account for the reacquisition of common stock. AnswerDirect Retirement MethodTreasury Stock Method Recreate the accounting entry to record the reacquisition of common stock. Date Account Name Dr. Cr. Dec. 31, 2020 AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer c. Determine the shares issued and shares outstanding on December 31, 2020, under Option One and under Option Two. Issued Shares Outstanding Shares Option One Answer Answer Option Two Answer Answer

Analyzing Common Stock Reacquisition Methods Lakers Inc. reacquired a number of its own shares in one transaction in December of 2020. (Assume no previous reacquisitions of stock.) Lakers Inc. could account for the reacquisition transaction using two different methods, illustrated as Option One and Option Two. Stockholders’ Equity Section at Dec. 31, 2020 Option One Option Two Common stock, $1 par, 280,000 shares authorized $22,400 $28,000 Paid-in capital in excess of par 336,000 420,000 Retained earnings 86,800 98,000 Treasury stock, 5,600 shares 0 (100,800) Total stockholders’ equity $445,200 $445,200 Required a. Identify which method the company used in Option One to account for the reacquisition of common stock. AnswerDirect Retirement MethodTreasury Stock Method Recreate the accounting entry to record the reacquisition of common stock. Note: List multiple debits (when applicable) in alphabetical order and list multiple credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. Dec. 31, 2020 AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer b. Identify which method the company used in Option Two to account for the reacquisition of common stock. AnswerDirect Retirement MethodTreasury Stock Method Recreate the accounting entry to record the reacquisition of common stock. Date Account Name Dr. Cr. Dec. 31, 2020 AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A Answer Answer c. Determine the shares issued and shares outstanding on December 31, 2020, under Option One and under Option Two. Issued Shares Outstanding Shares Option One Answer Answer Option Two Answer Answer

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 18E: Trading Securities Pear Investments began operations in 2020 and invests in securities classified as...

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Question

Analyzing Common Stock Reacquisition Methods

Lakers Inc. reacquired a number of its own shares in one transaction in December of 2020. (Assume no previous reacquisitions of stock.) Lakers Inc. could account for the reacquisition transaction using two different methods, illustrated as Option One and Option Two.

Stockholders’ Equity Section at Dec. 31, 2020	Option One	Option Two
Common stock, $1 par, 280,000 shares authorized	$22,400	$28,000
Paid-in capital in excess of par	336,000	420,000
Retained earnings	86,800	98,000
Treasury stock, 5,600 shares	0	(100,800)
Total stockholders’ equity	$445,200	$445,200

Required

a. Identify which method the company used in Option One to account for the reacquisition of common stock.

AnswerDirect Retirement MethodTreasury Stock Method

Recreate the accounting entry to record the reacquisition of common stock.

Note: List multiple debits (when applicable) in alphabetical order and list multiple credits (when applicable) in alphabetical order.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A	Answer	Answer
	AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A	Answer	Answer
	AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A	Answer	Answer
	AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A	Answer	Answer

b. Identify which method the company used in Option Two to account for the reacquisition of common stock.

AnswerDirect Retirement MethodTreasury Stock Method

Recreate the accounting entry to record the reacquisition of common stock.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A	Answer	Answer
	AnswerCashEquipmentInvestment in StockDividends PayableProperty Dividends PayablePreferred StockCommon StockCommon Stock Dividends DistributablePaid-in Capital in Excess of Par—Common StockPaid-in Capital in Excess of Stated Value—Common StockPaid-in Capital in Excess of Par—Preferred StockPaid-in Capital—Retired StockPaid-in Capital—Treasury StockRetained EarningsTreasury StockLegal ExpenseUnrealized Gain or Loss—IncomeN/A	Answer	Answer

c. Determine the shares issued and shares outstanding on December 31, 2020, under Option One and under Option Two.

	Issued Shares	Outstanding Shares
Option One	Answer	Answer
Option Two	Answer	Answer

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