Concept explainers
• LO18–5
At December 31, 2017, the balance sheet of Meca International included the following shareholders’ equity accounts:
Shareholders’ Equity | ($ in millions) |
Common stock, 60 million shares at $1 par | $ 60 |
Paid-in capital—excess of par | 300 |
410 |
Required:
Assuming that Meca International views its share buybacks as treasury stock, record the appropriate
1. On February 12, 2018, Meca reacquired 1 million common shares at $13 per share.
2. On June 9, 2019, Meca reacquired 2 million common shares at $10 per share.
3. On May 25, 2020, Meca sold 2 million treasury shares at $15 per share. Determine cost as the weighted-average cost of treasury shares.
4. For the previous transaction, assume Meca determines the cost of treasury shares by the FIFO method.
Treasury Stock: It refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement.
To Journalize: The treasury stock transactions for M International.
Explanation of Solution
(1)
Journalize the shares required (reacquired as treasury stock) on February 12, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
February | 12 | Treasury Stock | 13,000,000 | ||
Cash | 13,000,000 | ||||
(To record purchase of treasury stock) |
Table (1)
- Treasury Stock is stockholders’ equity account. The amount has decreased because common stock is purchased as treasury stock. Therefore, debit Treasury Stock account with $13,000,000.
- Cash is an asset account and the amount is decreased because cash is paid to buy treasury stock. Therefore, credit Cash account with $13,000,000.
Working Note:
Compute the treasury stock amount.
(2)
Journalize the shares required (reacquired as treasury stock) on June 9, 2019.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
June | 9 | Treasury Stock | 20,000,000 | ||
Cash | 20,000,000 | ||||
(To record purchase of treasury stock) |
Table (2)
- Treasury Stock is stockholders’ equity account. The amount has decreased because common stock is purchased as treasury stock. Therefore, debit Treasury Stock account with $20,000,000.
- Cash is an asset account and the amount is decreased because cash is paid to buy treasury stock. Therefore, credit Cash account with $20,000,000.
Working Note:
Compute the treasury stock amount.
(3)
Journalize the sale of treasury stock on May 25, 2020 (Use weighted average cost method to determine the cost of treasury stock).
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
May | 25 | Cash | 30,000,000 | ||
Treasury Stock | 22,000,000 | ||||
Paid-in Capital–Share Repurchase |
8,000,000 | ||||
(To record sale of treasury stock) |
Table (3)
- Cash is asset account. The amount is increased because cash is received on sale of treasury stock. Therefore, debit Cash account with $30,000,000.
- Treasury Stock is a stockholders’ equity account and the equity amount has increased due to sale of treasury stock. Therefore, credit Treasury Stock account with $22,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account and the amount has increased because treasury stock is sold for more than the price purchased. Therefore, credit Paid-in Capital–Share Repurchase account with $8,000,000.
Working Notes:
Compute cash received.
Compute treasury stock at weighted average cost.
Note: Refer to transactions 1 and 2 for values and computations of treasury stock amount and number of treasury shares.
Compute treasury stock value.
Note: Refer to Equation (2) for value and computation of weighted average cost of treasury shares.
Compute paid-in capital–share repurchase value.
Note: Refer to Equations (1) and (3) for the values and computations of cash received and treasury stock value at cost.
(4)
Journalize the sale of treasury stock on May 25, 2020 (Use FIFO method to determine the cost of treasury stock).
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
May | 25 | Cash | 30,000,000 | ||
Treasury Stock | 23,000,000 | ||||
Paid-in Capital–Share Repurchase |
7,000,000 | ||||
(To record sale of treasury stock) |
Table (4)
- Cash is asset account. The amount is increased because cash is received on sale of treasury stock. Therefore, debit Cash account with $30,000,000.
- Treasury Stock is a stockholders’ equity account and the equity amount has increased due to sale of treasury stock. Therefore, credit Treasury Stock account with $23,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account and the amount has increased because treasury stock is sold for more than the price purchased. Therefore, credit Paid-in Capital–Share Repurchase account with $7,000,000.
Working Notes:
Compute cash received.
Compute treasury stock at first-in-first-out (FIFO) cost for first 1,000,000 shares.
Compute treasury stock at first-in-first-out (FIFO) cost for next 1,000,000 shares.
Compute total treasury stock value.
Note: Refer to Equations (5) and (6) for values and computations of treasury stock value for first 1,000,000 shares and treasury stock value for next 1,000,000 shares.
Compute paid-in capital–share repurchase value.
Note: Refer to Equations (4) and (7) for the values and computations of cash received and treasury stock value at cost.
Want to see more full solutions like this?
Chapter 18 Solutions
INTERMEDIATE ACCOUNTING LL+CONNECT >BI<
- Problem 6 (Adapted)Anna company presented the following account balances in the shareholders’ equity section for the year ended December 31, 2018: Preference share capital, 12% P50 par, P3,000,000, Ordinary share capital, P100 par, P6,000,000 and deficit, (P1,350,000). No dividends have been paid on the preference share since 2016. Determine the book value per share under the following conditions:a. Preference share is preferred as to assetsb. Preference share is preferred as to dividendarrow_forwardwhich one is correct answer please confirm? Q18: WPI Inc. has the following current equity accounts on its balance sheet: Common stock ($2.50 par, 500,000 shares) $ 1,250,000 Contributed capital in excess of par $10,000,000 Retained earnings $15,540,000 Total $26,790,000 If WPI earned $3.20 per share this year, what is the maximum dividend per share that WPI may pay if the state capital impairment provisions are limited to the par value and the contributed capital in excess of par accounts? a. $34.28 b. $15.54 c. $31.08 d. $3.20arrow_forwardBook value per share1of Orlando Medical’s common stock outstanding at December 31,2018, wasa. 137.9.b. $35,147.c. $2.99.d. 20.1.arrow_forward
- 33. 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_forwardMf2. Company A is currently selling for $130 per share and has earnings of $13 per share. Company B is privately held with no market price and has earnings of $7 per share. Based on a P/E multiples valuation, what would be the expected price of a share of Company B stock? a. $91 b. $63 c. $70arrow_forward6) Exercise 18-23 (Static) Transactions affecting retained earnings [LO18-6, 18-7, 18-8] The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2020: Paid-in capital: Preferred stock, 8.8%, 90,000 shares at $1 par $ 90,000 Common stock, 364,000 shares at $1 par 364,000 Paid-in capital—excess of par, preferred 1,437,000 Paid-in capital—excess of par, common 2,574,000 Retained earnings 9,735,000 Treasury stock, at cost; 4,000 common shares (44,000 ) Total shareholders' equity $ 14,156,000 During 2021, several events and transactions affected the retained earnings of Consolidated Paper. Required:1. Prepare the appropriate entries for these events: On March 3, the board of directors declared a property dividend of 240,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $700,000). The investment…arrow_forward
- Sh.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_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_forwardN4 Refer to the Real Life Case of Chapter 19. Use financial statements (page 51) of Microsoft's 10-K for the fiscal year ended June 30 , 2019 (Source: SEC Edgar). The basic EPS of Microsoft for year 2019 is $5.11 , weighted average shares outstanding is 7,673 million shares, and share price is $134 . If the company had pre-announced and used all funds in its share repurchase program of $40 billion on June 30 , 2019, what would Microsoft's basic EPS have been for fiscal year 2019? a. $3.29 b. $5.06 c. $2.13 d. $5.32 e. $5.11arrow_forward
- 65. The stockholders’ equity of A Company at the end of 2023 and 2022 are as follows: 2023 2022 Preferred stock, P100 par, 12% P1,000,000 P 600,000 Common stock, P20 par 2,000,000 1,800,000 Paid in capital in excess of par Preferred 16,000 - Common 4,350,000 3,750,000 Retained earnings 80,000 180,000 At what price per share are the shares of preferred stock issued in 2023?arrow_forwardRa Subject-Accounting at december 31, 2022 and 2023 sunland corp had 102000 common shares and 10200 $4 no par value cumulative preferred shares outstanding. No dividends were declared in 2022 or 2023. Net income for 2023 was $296780. For 2023 basic earnings per share would bearrow_forward13. The following data were available for the portfolio of investment in stocks during 20X2: Cost Fair value (12/31/20X1) Fair Value (12/31/20X2) ABC 100,000 80,000 110,000 LMN 80,000 30,000 40,000 QRS 60,000 70,000 60,000 All the shares of ABC were sold on January 20X3 for P41,200 and incurred P1,200 transaction costs. What is the amount of gain (loss) on Dec 31, 20X1, Dec 31, 20X2 and Jan 20X3 respectively? (60,000); 30,000 ; (70,000) (60,000); (30,000); (20,000) (60,000); 30,000; (60,000) (60,000); 30,000; 30,000arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education