Question

National Supply's shareholders' equity included the following accounts at December 31, 2020: Shareholders' Equity Common stock, 3 million shares at $1 par Paid-in capital-excess of par Retained earnings $ 3,000,000 21, eee, eee 83,500,000 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, 2021 Reacquired 280,000 shares at $10 per share. February 17, 2022 Reacquired 280,000 shares at $7.50 per share. November 9, 2022 Sold 185,000 shares at $9 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 $19 million in 2021, $20 million in 2022, and $21 million in 2023. No dividends were paid during the three-year period. Complete this question by entering your answers in the tabs below. Reg 1 Retired Req 1 Treasury Stock Prepare the entry for each of the transactions given in the requirement above. Assume shares are retired. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.)

Answer 1

1	(a) Retired
	Avaerage paid-in capital-excess of par=Paid-in capital in excess pf par/Number of shares=21000000/3000000=$ 7 per share
	Sl no.	Date	Account titles and explanation					Debit	Credit
		2021
	a.	Feb. 15	Common stock			(280000*1)		280000
			Paid-in capital in excess of par			(280000*7)		1960000
			Retained earnings			(plug)		560000
			Cash			(280000*10)			2800000
			(Reacquired 280000 shares at $ 10 per share)
		2022
	b.	Feb. 17	Common stock			(280000*1)		280000
			Paid-in capital in excess of par			(280000*7)		1960000
			Paid-in capital from share repurchase			(plug)			140000
			Cash			(280000*7.50)			2100000
			(Reacquired 280000 shares at $ 7.50 per share)
		2023
	c.	Nov. 9	Cash			(185000*9)		1665000
			Common stock			(185000*1)			185000
			Paid-in capital in excess of par			(plug)			1480000
			(Reissued 185000 shares at $ 9 per share)
	(b) Viewed as treasury stock
	Sl no.	Date	Account titles and explanation					Debit	Credit
		2021
	a.	Feb. 5	Treasury stock			(280000*10)		2800000
			Cash						2800000
			(Reacquired 280000 shares at $ 10 per share)
	b.	Jul. 9	Treasury stock			(280000*7.5)		2100000
			Cash						2100000
			(Reacquired 280000 shares at $ 7.50 per share)
		2023
	c.	Nov. 14	Cash			(185000*9)		1665000
			Retained earnings			(Plug)		185000
			Treasury stock			(185000*10)			1850000
			(Reissued 185000 shares at $ 9 per share)
	Company follows FIFO method.
	Under,FIFO it is assumed that shares reacquired first are sold first.
	Hence,shares reacquired at Feb 5,2021 will be sold first (Cost=$ 10 per share)
2						Retired (a)	Treasury stock (b)
	Paid-in capital:
	Common stock, 2625000 shares at $ 1 par				(Note:1)	2625000
	Common stock, 3000000 shares at $ 1 par						3000000
	Paid-in capital in excess of par				(Note:2)	18560000	21000000
	Retained earnings				(Note:3)	142940000	143315000
	Total					164125000	167315000
	Less: Treasury stock				(Note:4)	0	3050000
	Total shareholder's equity					164125000	164265000
	Note:1
	Number of shares issued under (a)=3000000-280000-280000+185000=2625000 shares
	Note:2
	Paid in capital in excess of par under (a)=21000000-1960000-1960000+1480000=$ 18560000
	Paid in capital in excess of par under (b), no change