Question

Check my work Problem 18-2 Share buyback-comparison of retirement and treasury stock treatment (LO18-5) 2 The shareholders' equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017: points eBook Shareholders' Equity Common stock, 210 million shares at $1 par Paid-in capital-excess of par Paid-in capital-share repurchase Retained earnings ($ in millions) $ 210 1,260 1 1,200 Print References Required: 1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions. Prepare the entries for both the purchase and subsequent resale of the shares assuming the shares are (a) retired and (b) viewed as treasury stock. a. On February 5, 2018, TNL Systems purchased 9 million shares at $10 per share. b. On July 9, 2018, the corporation sold 3 million shares at $12 per share. c. On November 14, 2020, the corporation sold 3 million shares at $7 per share. 2. Prepare the shareholders' equity section of TNL Systems' balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018–2020 was distributed to shareholders as cash dividends.

Answer 1

Solution 1:

E F G H I No. Debit Credit TNL Systems Inc. Journal Entries (a) Assuming Shares are retired (In millions) Date Account Name 05-Feb Common stock Dr (9 x $1) Paid-in capital -excess of par Dr ($1260/210*9) Paid-in capital-share repurchase Dr Retained earnings Dr To Cash (9*$10) $91 $54 $26 11 2 09-Juasi $36 12 13 09-Jul Cash Dr (3 x $12) To Common stock Dr (3 x $1) To Paid-in capital-excess of par 14 15 $21 16 17 18 19 14-Nov Cash Dr (3 x $7) To Common stock (3 x $1) To Paid-in capital -excess of par 20 21 22 23 Journal Entries (b) Assuming Shares are Viewed as Treasury Stock (In millions) Date Account Name Debit 05-Feb Treasury stock Dr (9 x $10) To Cash Credit No. 1 24 $90 25 $90 26 27 09-Jul Cash Dr (3 x $12) To Paid-in capital-share repurchase To Treasury stock (3 x $10) 28 29 30 31 32 33 34 35 36 37 14-NovCash Dr (3 x $7) Paid-in capital-share repurchase Dr Retained earnings Dr To Treasury stock (3 x $10) 38 39 40 41 42 43 44 45 46 48 49 Sheet721 Sheet153 (28) Sheet726 Sheet727 She

Solution 2:

N. Retirement Treasury Stock Shareholder's Equity Paid in Capital: Common stock Paid-in capital-excess of par Retained earnings Less: treasury Stock Total Shareholder's Equity $207 $1,257 $1,174 $0 $2,638 $210 $1,260 $1,198 $30 $2,698 12 13 14 15 36 37 38 42 43 Sheet721 Sheet153 (28) Sheet726 Sheet727 She Lo s