Question

The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2020:

Shareholders' Equity	($ in millions)
Common stock, 270 million shares at $1 par	$	270
Paid-in capital—excess of par		1,890
Paid-in capital—share repurchase		2
Retained earnings		1,700

Required:
1. During 2021, 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.

1. On February 5, 2021, TNL Systems purchased 7 million shares at $11 per share.
2. On July 9, 2021, the corporation sold 3 million shares at $13 per share.
3. On November 14, 2023, the corporation sold 3 million shares at $8 per share.

2. Prepare the shareholders’ equity section of TNL Systems’ balance sheet at December 31, 2023, comparing the two approaches. Assume all net income earned in 2021–2023 was distributed to shareholders as cash dividends.

Answer 1

1A. Retirement:

February 5, 2021	Common stock(7m*$1) Paid in capital in excess of par(1890*7/270) paid in capital share puchase retained earnings cash(7m*$11) (To record purchase and retirement of common stock)	7 49 2 19	77
July 9, 2021	Cash (3m*$13) Common stock(3*1) Paid in capital excess of par   (To record issuance of common stock)	39	3 36
November 14, 2023	Cash(3m*$8) Common stock(3m*$1) Paid in capital exess of par (To record issuance of common stock)	24	3 21

b.Treasury stock

February 5, 2021	Treasury stock Cash(7*$11) (To record purchase of treasury stock)	77	77
July 9, 2021	Cash(3*13) paid in capital share puchase Treasury stock(3*11) (To record sale of treasury stock)	39	6 33
November 14, 2023	Cash(3*8) paid in capital share repuchase Retained earnings Treasury stock(3*11) (To record sale of treasury stock)	24 8 1	33

2.

Shareholders equity	Retirement treasury stock
Paid in capital
Common stock	269	270
Paid-in capital-excess of par	1898	1890
Retained earnings	1681	1699
Less: treasury Stock	0	11
Total Shareholder's Equity	3848	3848

Commom stock=270-7+3+3

Paid-in capital-excess of par=1890-49+36+21=1898

Retained earnings=1700-19=1681,1700-1=1699

Treasury stock=77-33-33=11