Concept explainers
Retirement of shares
• LO18–5
In 2018, Borland Semiconductors entered into the transactions described below. In 2015, Borland had issued 170 million shares of its $1 par common stock at $34 per share.
Required:
Assuming that Borland retires shares it reacquires, record the appropriate
- 1. On January 2, 2018, Borland reacquired 10 million shares at $32.50 per share.
- 2. On March 3, 2018, Borland reacquired 10 million shares at $36 per share.
- 3. On August 13, 2018, Borland sold 1 million shares at $42 per share.
- 4. On December 15, 2018, Borland sold 2 million shares at $36 per share.
Retired stock:
Buy back of shares from the shareholders by paying cash and obtaining the status of “authorized but unissued shares” is known as retired shares.
To Journalize: The transactions for B Semiconductors.
Explanation of Solution
(1)
Prepare journal entry, to record the required shares on January 2, 2018.
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
2018 | ||||
January | 2 | Common Stock | 10,000,000 | |
Paid-in Capital–Excess of Par | 330,000,000 | |||
Paid-in Capital–Share Repurchase |
15,000,000 | |||
Cash | 325,000,000 | |||
(To record retirement of common stock) |
Table (1)
- Common Stock is a stockholders’ equity account and the amount has decreased due to re-acquisition of common stock. Therefore, debit Common Stock account with $10,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has decreased due to decrease in capital. Therefore, debit Paid-in Capital–Excess of Par account with $330,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account. The amount has increased because cash paid for reacquisition is less than cash received while original issue of shares. Therefore, credit Paid-in Capital–Share Repurchase account with $15,000,000.
- Cash is an asset account. The amount is decreased because cash is paid for stock re-acquisition; therefore, credit Cash account with $325,000,000.
Working Notes:
Compute common stock value.
Compute excess of par value of shares.
Compute paid-in capital in excess of par value.
Note: Refer to Equation (2) for values and computations of excess of par value per share.
Compute cash paid amount.
Compute paid-in capital-share repurchase amount.
Note: Refer to Equations (1), (3), and (4) for values and computations of common stock, paid-in capital-excess of par value, and cash paid.
(2)
Prepare journal entry, to record the required shares on March 3, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
March | 3 | Common Stock | 10,000,000 | ||
Paid-in Capital–Excess of Par | 330,000,000 | ||||
Paid-in Capital–Share Repurchase | 15,000,000 | ||||
Retained Earnings | 5,000,000 | ||||
Cash | 360,000,000 | ||||
(To record retirement of common stock) |
Table (2)
- Common Stock is a stockholders’ equity account and the amount has decreased due to re-acquisition of common stock. Therefore, debit Common Stock account with $10,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has decreased due to decrease in capital. Therefore, debit Paid-in Capital–Excess of Par account with $330,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account. The amount has decreased because cash paid for reacquisition is more than cash received while original issue of shares. Therefore, debit Paid-in Capital–Share Repurchase account with $15,000,000.
- Retained Earnings is a shareholders’ equity account. The amount has decreased because cash paid for reacquisition is more than cash received while original issue of shares. Therefore, debit Retained Earnings account with $5,000,000.
- Cash is an asset account. The amount is decreased because cash is paid for stock re-acquisition; therefore, credit Cash account with $360,000,000.
Working Notes:
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equation (2) for values and computations of excess of par value per share.
Compute cash paid amount.
Compute retained earnings amount.
Note: Refer to Equations (8), (6), (7), and (5) for values and computations of cash paid, common stock, paid-in capital-excess of par value, and paid-in capital–share repurchase values respectively.
(3)
Prepare journal entry, to record the sale of shares on August 13, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
August | 13 | Cash | 42,000,000 | ||
Common Stock | 1,000,000 | ||||
Paid-in Capital–Excess of Par | 41,000,000 | ||||
(To record issuance of common stock) |
Table (3)
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $42,000,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $1,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital–Excess of Par account with $41,000,000.
Working Notes:
Compute cash received.
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equations (9) and (10) for values and computations of cash received and common stock value.
(4)
Prepare journal entry, to record the sale of shares on December 15, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 15 | Cash | 72,000,000 | ||
Common Stock | 2,000,000 | ||||
Paid-in Capital–Excess of Par |
70,000,000 | ||||
(To record issuance of common stock) |
Table (4)
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $72,000,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $2,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital–Excess of Par account with $70,000,000.
Working Notes:
Compute cash received.
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equations (9) and (10) for values and computations of cash received and common stock value.
Want to see more full solutions like this?
Chapter 18 Solutions
GEN CMB INTRM ACCTG; CNCT 9E 2
- PROBLEM 34 On January 1, 2020, Edelyn Corporation acquired 10,000 shares of JKL Company for P500,000. The 10,000 shares are equivalent to 20% interest of the investee. JKL Company reported the following net income or loss: 2020 - P1,000,0002021 - (P5,000,000)2022 - P300,000 Requirements:1. Prepare the necessary journal entries to record the share of income or loss in 2020, 2021, and 2022.2. What is the carrying value of the investment on December 31, 2020? December 31, 2021? December 31, 2022?arrow_forwardQuestion 5 During 2021 Carla Vista Company purchased 9500 shares of Metlock Inc. for $25 per share. During the year Carla Vista Company sold 2250 shares of Metlock, Inc. for $30 per share. At December 31, 2021 the market price of Metlock, Inc.’s stock was $23 per share. What is the total amount of gain/(loss) that Carla Vista Company will report in its income statement for the year ended December 31, 2021 related to its investment in Metlock, Inc. stock? $-7750 $11250 $-19000 $-3250arrow_forwardChapter 11 Comprehensive Problem – CP11-11 The following note appeared on the balance sheet of Sabre Rigging Limited: As of December 31, 2019, dividends on the cumulative preferred stock were in arrears for three years to the extent of $15 per stock or $15,000 in total. Required: 1.Does the amount of the arrears appears as a liability on the December31, 2019 balance sheet? Explain your answer. Why might the dividends be in arrears? The comptroller of Sabre Rigging projects net income for the2020 fiscal year of $35,000. When the company last paid dividends, the directors allocated 50 per cent of current year’s net income for dividends. If dividends on shares of preferred stock are resumed at the end of 2020 and the established policy of 50 per cent is continued, how much will be available for dividends to the common stockholders if the profit projection is realized?arrow_forward
- Question 5 On January 2, 2020, Theodora Company purchased 40,000 shares of Byzantine, Inc. stock at P100 per share. Brokerage fees amounted to P120,000. A P5 dividend per share of Byzantine, Inc. shares had been declared on December 15, 2019, to be paid on March 31, 2020 to shareholders of record on January 31, 2020. The shares are designated as FVTOCI. On December 31, 2020 the investment has a fair value of P4,200,000. How much should be recognized in the 2020 other comprehensive income related to these securities? Group of answer choices P400,000 P200,000 P80,000 P280,000arrow_forwardSh.27. On January 1, 2023, Bre-x Inc. had 600,000 common shares outstanding. On March 1, the corporation issued 60,000 new common shares to raise additional capital. On July 1, the corporation declared and distributed a 12% stock dividend on its common shares. On October 1, the corporation repurchased on the market 20,000 of its own outstanding common shares to make them available for issuances related to its key executives' outstanding stock options. Required: a. Calculate the weighted average number of shares outstanding as at December 31, 2023. Round to the nearest share. b. Assume that Bre-X Inc. had a 1-for-10 reverse stock split instead of a 10% stock dividend on July 1, 2023. Calculate the weighted average number of shares outstanding as at December 31, 2023. Round to the nearest share.arrow_forward39. A company started operations in 2019 with 250,000 P10 par value ordinary shares and 20,000 9% P100 par value preference shares. This capitalization did not change until 2021. The company paid dividends amounting to P150,000, P260,000 and P540,000 at the end of 2019, 2020 and 2021, respectively. If the preference shares were cumulative and non-participating, determine the dividend per ordinary share in 2021. (Round off final answer to 2 decimal places)arrow_forward
- QUESTION 7 At December 31, 2019, Bixby Corporation had 30,000 shares outstanding of $10 par value common stock. The shares were originally issued for $26 per share. On January 1, 2020, Bixby split its common stock 4 for 1 with a corresponding reduction in the stock’s par value. The market price of the stock just before the split was $60 per share. After the split, the balance of the common stock account is: A. $ 900,000 B. $ 780,000 C. $1,800,000 D. $ 300,000arrow_forwardQuestion 6 On June 1, 2020, Ping Corp. purchased 10,000 of Pong’s 50,000 outstanding shares at a price of P6.00 per share. Pong had earnings of P3,000 per month during 2020 and paid dividends of P10,000 on March 1, 2020 and P12,500 on December 1, 2020. The fair value of Pong’s shares was P6.50 per share on December 31, 2020. Which statement is correct? Group of answer choices Assuming that the investment is FVTOCI, the total effect on Ping’s profit or loss for the year ended December 31, 2020 is P7,500. Assuming that the investment is an associate, the total effect on Ping’s profit or loss for the year ended December 31, 2020 is P3,600. After all closing entries for 2020 are completed, the effect of the increase in fair value on total shareholders' equity would be the same amount under the FVTOCI and FVTPL approaches. Assuming that the investment is FVTPL, the total effect on Ping’s profit or loss for the year ended December 31, 2020 is P2,500.arrow_forwardCh. 29. In 2020, CVR Energy, Inc. began purchasing stocks of Delek US Holdings, Inc. CVR acquired 15% stake in Delek in hopes to replace 3 of Delek’s board members. This is an example of which of the following? Group of answer choices white knight street sweep tender offerarrow_forward
- qw.128. On January 1, 2021, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each permitting holders to purchase one share of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $16 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Management’s 1.) Total Compensation Cost 2.) Record compensation expense on December 31, 2021. 3.) Record the compensation expense.arrow_forward33. On December 31, 2018, Calm Company appropriately reported P80, 000 unrealized loss in OIC for equity securities measured irrevocably at FVOCI. Security Cost Fair value at 12/31/19 X 1, 250, 000 1, 600, 000 Y 1, 000, 000 950, 000 Z 1, 750, 000 1, 250, 000 What amount of unrealized loss is recognized in the 2019 statement of changes in equity? a.280,000 b.200,000 c.120,000 d.0arrow_forwardExercise 19-24 (Algo) New shares; contingently issuable shares [LO19-6,19-12] During 2024, its first year of operations, Kevin Berry Industries entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 100 million common shares, $1 par per share. January 2 Issued 75 million common shares for cash. January 2 Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2025 based on the earnings of Berry in 2025. If net income exceeds $120 million, the president will receive 1 million shares; 2 million shares if net income exceeds $130 million. March 31 Issued 4 million shares in exchange for plant facilities. Net income for 2024 was $125 million. Required: Compute basic and diluted earnings per share for the year ended December 31, 2024. Note: Do not round intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning