Question

National Supply's shareholders' equity included the following accounts at December 31, 2017:

Shareholders' Equity	($ in millions)
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 of the transactions under each of two separate assumptions: the shares are (a) retired and (b) accounted for as treasury stock.

February 15, 2018	Reacquired 300,000 shares at $8 per share.
February 17, 2019	Reacquired 300,000 shares at $5.50 per share.
November 9, 2020	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, 2020, assuming the shares are (a) retired and (b) accounted for as treasury stock. Net income was $14 million in 2018, $15 million in 2019, and $16 million in 2020. No dividends were paid during the three-year period.

Answer 1

Solution:

Question 1:

Journal entries for Retired

Date	Particulars	Debit($)	Credit($)
Feb 15	Common stock	300,000
	Paid in capital excess of par	1,500,000
	Retained earnings	600,000
	Cash		2,400,000
Feb 17	Common stock	300,000
	Paid in capital excess of par	1,500,000
	Paid in capital share repurchase		150,000
	Cash		1,650,000
Nov 9	Cash	1,400,000
	Common stock		200,000
	Paid in capital		1,200,000

Journal entries for treasury stock

Date	Particulars	Debit($)	Credit($)
Feb 15	Treasury stock	2,400,000
	Cash		2,400,000
Feb 17	Treasury stock	1,650,000
	Cash		1,650,000
Nov 9	Cash	1,400,000
	Retained earnings	200,000
	Treasury stock		1,600,000

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