Question

National Supply’s shareholders’ equity included the following accounts at December 31, 2020:

Shareholders' Equity
Common stock, 2 million shares at $1 par	$	2,000,000
Paid-in capital—excess of par		16,000,000
Retained earnings		82,000,000

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 260,000 shares at $11 per share.
February 17, 2022	Reacquired 260,000 shares at $8.50 per share.
November 9, 2023	Sold 170,000 shares at $10 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 $18 million in 2021, $19 million in 2022, and $20 million in 2023. No dividends were paid during the three-year period.

Answer 1

Compute Average paid-in capital excess of par as follows:

Paid in capital-excess of par	$16,000,000
Number of shares	2,000,000
Average paid in capital -in excess of par	$8

1.

(a)

Credit Assume Shares are Retired Date Account Feb. 15, 2021 Common stock (260,000 shares Ⓡ$1) Paid in capital-in excess of par (260,000 $8) Retained Earnings (b/f) Cash (260,000 $11) Debit $260.000 $2.080.000 $520,000 $2.860,000 $260.000 $2.080.000 Feb. 17, 2022 Common stock (260,000 shares x $1) Paid in capital-in excess of par (260,000 $8) Cash (260.000 < $8.50) Paid in capital from share repurchase (260,000 $2,210,000 $130.000 $0.5) $1,700,000 Nov. 09. 2023 Cash (170.000 shares < $10) Common stock (170,000 shares x $1) Paid in capital-in excess of par $170,000 $1,530,000

(b)

Credit Assume Shares are Accounted for as Treasury stock Date Account Debit Feb. 15, 2021 Teasury Stock (260,000 shares x $11) $2.860,000 Cash $2.860,000 $2.210.000 Feb. 17. 2022 Teasury Stock (260,000 shares x $8.5) Cash $2,210,000 $1,700,000 $170,000 Nov. 09. 2023 Cash (170,000 shares x $10) Retained Earnings Treasury Stock (170,000 shares x $11) (Assume FIFO method) $1.870,000

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Part 2.

Prepare T-accounts for better understanding as follows under both assumption:

(a)

Common stock
Feb. 15, 2021	$260,000	Dec. 31, 2020	$2,000,000
Feb. 17, 2022	$260,000	Nov. 9, 2023	$170,000
		End. Bal.	$1,650,000
Paid in capital -excess of par
Feb. 15, 2021	$2,080,000	Dec. 31, 2020	$16,000,000
Feb. 17, 2022	$2,080,000	Nov. 9, 2023	$1,530,000
		End. Bal.	$13,370,000
Paid in capital share Repurchase
		Feb. 17, 2022	$130,000
Retained Earnings
Feb. 15, 2021	$520,000	Dec. 31, 2020	$82,000,000
		Dec. 31, 2021	$18,000,000
		Dec. 31, 2022	$19,000,000
		Dec. 31, 2023	$20,000,000
		End. Bal.	$138,480,000

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Prepare T-accounts using assumption (b)

Common stock
		Dec. 31, 2020	$2,000,000
		End. Bal.	$2,000,000
Paid in capital -excess of par
		Dec. 31, 2020	$16,000,000
		End. Bal.	$16,000,000
Treasury stock
Feb. 15, 2021	$2,860,000	Nov. 9, 2023	$1,870,000
Feb. 17, 2022	$2,210,000
End. Bal.	$3,200,000
Retained Earnings
Nov. 9, 2023	$170,000	Dec. 31, 2020	$82,000,000
		Dec. 31, 2021	$18,000,000
		Dec. 31, 2022	$19,000,000
		Dec. 31, 2023	$20,000,000
		End. Bal.	$138,830,000

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Prepare the shareholders’ equity section of National Supply’s balance sheet at December 31, 2023

	Retirement (a)	Treasury Stock (b)
Paid-in capital:
Common stock, $1 par	$1,650,000	$2,000,000
Pai-in capital-excess of par	$13,370,000	$16,000,000
paid-in capita-Share repurchase	$130,000	$0
Retained Earnings	$138,480,000	$138,830,000
Less: Treasury stock	$0	($3,200,000)
Total shareholder's equity	$153,630,000	$153,630,000