Question

The shareholders' equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2020: Shareholders' Equity Common stock, 270 million shares at $1 par Paid-in capital-excess of par Paid in capital-share repurchase Retained earnings (s in millions) $ 270 1,890 2 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, a. On February 5, 2021, TNL Systems purchased 7 million shares at $11 per share. b. On July 9, 2021, the corporation sold 3 million shares at $13 per share. c. 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) Assuming shares are retired
Date	Journal Entry		Debit	Credit
5 Feb	Common Stock	7M *1	7
	Paid in Capital-Excess of par	1890/270*7	49
	Paid in capital - Share Repurchase		2
	Retained Earnings		19
	Cash	7M *1		77
;9 Jul	Cash	3M *13	39
	Common Stock	3M *1		3
	Paid in Capital- Excess of par			36
14 Nov	Cash	3M *8	24
	Common Stock	3M *1		3
	Paid in Capital- Excess of par			21
1b) Assuming shares are viewed as treasury stock
Date	Journal Entry		Debit	Credit
5 Feb	Treasury Stock		77
	Cash	7M *11		77
;9 Jul	Cash	3M *13	39
	Treasury Stock	3M *11		33
	Paid in capital - Share Repurchase			6
14 Nov	Cash	3M *8	24
	Paid in capital - Share Repurchase	(2+6)	8
	Retained Earnings		1
	Treasury Stock	3M *11		33

Requirement 2) Shareholder's Equity Section:

Shareholder's Equity
	Retirement	Treasury Stock
Common Stock	269	270
Paid in Capital-Excess of par	1898	1890
Retained Earnings	1681	1699
Less: Treasury Stock	0	-11
Total	3848	3848