In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2021 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, 2020, UMC's balance sheet reported the following shareholders' equity:
($ in millions) | |||
Common stock, $1 par | $ | 150 | |
Paid-in capital—excess of par | 450 | ||
Retained earnings | 960 | ||
Treasury stock (4 million shares at cost) | (20 | ) | |
Total shareholders’ equity | $ | 1,540 | |
Required:
a. Identify the type of accounting change this
decision represents.
b. Prepare the journal entry to effect the
reclassification of treasury shares as retired shares.
Answer:
Date | particulars | Debit ($) | Credit ($) |
2021 | Common Stock (4000000 shares*$1) | 4,000,000 | |
Paid in Capital - Excess of par | 12,000,000 | ||
Reatained Earnings | 4,000,000 | ||
trasury Stock | 20,000,000 | ||
(To record retirement of common stock) |
Working Notes:
Excess of par = 450,000,000/150,000,000 = $3
Paid in capital in excess of par value = 4,000,000 shares *
$3
=$12,000,000
In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in...
In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2018 to discontinue accounting for reacquired shares as treasury stock. Instead, shares repurchased will be viewed as having been retired, reassuming the status of unissued shares. As part of the change, treasury shares held were reclassified as retired stock. At December 31, 2017, UMC’s balance sheet reported the following shareholders’ equity: ($ in millions) Common stock, $1 par $ 265 Paid-in capital—excess of par...
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This is from Intermediate Accounting by authors: Spiceland,
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