Question

In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2018 to discontinue accounting for reacquired shares as treasury stock. Instead, shares repurchased will be viewed as having been retired, reassuming the status of unissued shares. As part of the change, treasury shares held were reclassified as retired stock. At December 31, 2017, UMC’s balance sheet reported the following shareholders’ equity:

	($ in millions)
Common stock, $1 par		$	265
Paid-in capital—excess of par			1,060
Retained earnings			1,086
Treasury stock (5.3 million shares at cost)			(90	)
Total shareholders’ equity		$	2,321

  
Required:
Identify the type of accounting change this decision represents and prepare the journal entry to effect the reclassification of treasury shares as retired shares.

Record the treasury shares as retired shares.

Answer 1

1.) This is a Change in accounting principle.

2.) Journal entry :- ($ in millions)

Account Title and Explanation	Debit	Credit
Common stock ($1 x 5.3 million shares)	5.3
Pain in capital in excess of par [(1,060/265) x 5.3 million shares]	21.2
Retained earnings	63.5
Treasury stock		90