Question

P 18-3 Reacquired shares comparison of retired shares and treasury shares • L018-5 > National Supply's shareholders' equity included the following accounts at December 31, 2020: Shareholders' Equity Common stock, 6 million shares at $1 par $ 6,000,000 Paid-in capital excess of par 30,000,000 Retained earnings 86,500,000 > Required: 1. National Supply reacquired shares of its common stock in two separate transactions and later sold shares. Prepare the entries for each the transactions under each of two separate assumptions: the shares are (a) retired and (b) accounted for as treasury stock February 15, 2021 February 17, 2022 November 9, 2023 Reacquired 300,000 shares at $8 per share. Reacquired 300,000 shares at $5.50 per share. Sold 200,000 shares at $7 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) retire and (b) accounted for as treasury stock. Net income was $14 million in 2021, $15 million in 2022, and $16 million in 2023. No divi were paid during the three-year period.

Answer 1

Requirement 1 February 15, 2013 (a) Retired Common stock (300,000 shares x $1 par).. 300,000 Paid-in capital-excess of par (300,000 shares x $5) ........ 1,500,000 Retained earnings (difference) 600,000 Cash (300,000 shares x $8). 2,400,000 (b) Accounted for as treasury stock Treasury stock (300,000 shares x $8).... 2,400,000 Cash (300,000 shares x $8). 2,400,000 February 17, 2014 (a) Retired Common stock (300,000 shares x $1 par)...... 300,000 Paid-in capital-excess of par (300,000 shares x $5). 1,500,000 Paid-in capital-share repurchase (difference)..... ... 150,000 Cash (300,000 shares x $5.50...... 1,650,000 (b) Accounted for as treasury stock Treasury stock (300,000 shares x $5.50).......... 1,650,000 Cash (300,000 shares x $5.50).... 1,650,000 November 9, 2015 (a) Retired Cash (200,000 shares x $7)... 1,400,000 Common stock (200,000 shares x $1 par).... ................ 200,000 Paid-in capital-excess of par (difference)... 1,200,000

(b) Accounted for as treasury stock Cash (200,000 shares x $7) ...... 1,400,000 Retained earnings ............ 200,000 Treasury stock (200,000 shares x $8 FIFO cost) ...................... 1,600,000 Requirement 2 Shareholders' Equity SHARES RETIRED TREASURY STOCK Paid-in capital: Common stock, $1 par, ......... $ 5,600,000 $ 6,000,000 Paid-in capital-excess of par......... 28,200,000 30,000,000 Paid-in capital-share repurchase...... 150,000 Retained earnings.. 130,900,000* 131,300,000** Less: treasury stock, 400,000 shares (at cost).... (2,450,000) Total shareholders' equity ................ $164,850,000 $164.850,000 * $86,500,000 - 600,000 + 14,000,000 + 15,000,000 + 16,000,000 **$86,500,000 + 14,000,000 + 15,000,000 + 16,000,000 - 200,000

Paid-in capital: Common stock, $1 par, ..... $ 5,600,000 $ 6,000,000 Additional paid-in capital... 28,350,000 30,000,000 Retained earnings .... 130,900,000* 131,300,000** Less: treasury stock, 400,000 shares (at cost)............ _(2,450,000) Total shareholders' equity .......... $164,850,000 $164,850,000