Question

The shareholders' equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017: ($ in millions) $ 240 1,680 Shareholders' Equity Common stock, 240 million shares at $1 par Paid-in capital excess of par Paid-in capital-share repurchase Retained earnings Required: 1,100 1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate trans-actions. 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 6 million shares at $10 per share. b. On July 9, 2018, the corporation sold 2 million shares at $12 per share.

This is from Intermediate Accounting by authors: Spiceland, Nelson, and Thomas. Ch.18 P-2 question #1-b.) I understand how the cash should be debited for 24,000,000 but shouldn't Paid-In-Capital be $1680/$240= $7 excess of Par value just like in question # 1-a.) of this problem? $7 *2 million shares sold = $14,000,000 Paid-In-Capital-Excess of Par; Common Stock of 2,000,000 and Retained Earnings of 8,000,000 in order to equal out the 24,000,000 that cash is debited by? Please explain in detail.

Answer 1

The corporatiion has sold/issued 2 million shares of $1 par vlaue common stock on July 9,2018
for $12 per share. So it means that the company has purchased 2,000,000 shares of $1
and that is why the common stock has been credited by $2,000,000. Whereas the Additional paid
in capital of $22,000,000(2,000,000*$11) is credited and the market value is debited with cash
of $24,000,000