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Item 1

Item 1 25 points

National Supply's shareholders' equity included the following accounts at December 31, 2020:

Shareholders' Equity
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, 2021	Reacquired 300,000 shares at $8 per share.
February 17, 2022	Reacquired 300,000 shares at $5.50 per share.
November 9, 2023	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, 2023, assuming the shares are (a) retired and (b) accounted for as treasury stock. Net income was $14 million in 2021, $15 million in 2022, and $16 million in 2023. No dividends were paid during the three-year period.

Record the purchase of 300,000 shares at $8 per share on February 15, 2021 for retirement.

Record the purchase of 300,000 shares at $5.50 per share on February 17, 2022 for retirement.

Record the sale of 200,000 shares at $7 per share (assume FIFO cost) on November 9, 2023.

Record the purchase of 300,000 shares at $8 per share on February 15, 2021 that are accounted for as treasury stock.

Record the purchase of 300,000 shares at $5.50 per share on February 17, 2022 that are accounted for as treasury stock.

Record the sale of 200,000 shares at $7 per share (assume FIFO cost) on November 9, 2023.

Prepare the shareholders’ equity section of National Supply’s balance sheet at December 31, 2023, assuming the shares are (a) retired and (b) accounted for as treasury stock. Net income was $14 million in 2021, $15 million in 2022, and $16 million in 2023. No dividends were paid during the three-year period. (Enter your answers in whole dollars.)

Answer 1

Requirement 1

February 15, 2021

(a) Retired

Common stock (300,000 shares x $1 par)..................................               300,000
Paid-in capital—excess of par
(300,000 shares x $5)..................................................................            1,500,000
Retained earnings (difference)...................................................               600,000
     Cash (300,000 shares x $8)....................................................                                 2,400,000

(b) Accounted for as treasury stock

Treasury stock (300,000 shares x $8).........................................            2,400,000
     Cash (300,000 shares x $8)....................................................                                 2,400,000

February 17, 2022

(a) Retired

Common stock (300,000 shares x $1 par)..................................               300,000
Paid-in capital—excess of par
(300,000 shares x $5)..................................................................            1,500,000
     Paid-in capital—share repurchase (difference)......................                                    150,000
     Cash (300,000 shares x $5.50)...............................................                                 1,650,000

(b) Accounted for as treasury stock

Treasury stock (300,000 shares x $5.50)....................................            1,650,000
     Cash (300,000 shares x $5.50)...............................................                                 1,650,000

November 9, 2023

(a) Retired

Cash (200,000 shares x $7).........................................................            1,400,000
     Common stock (200,000 shares x $1 par)..............................                                    200,000
     Paid-in capital—excess of par (difference)...........................                                 1,200,000

(b) Accounted for as treasury stock

Cash (200,000 shares x $7).........................................................            1,400,000
Retained earnings.......................................................................               200,000
     Treasury stock (200,000 shares x $8 FIFO cost)...................                                 1,600,000

Requirement 2

                        Shareholders’ Equity                                                                                   

                                                                                         Shares Retired              Treasury Stock   

Paid-in capital:
Common stock, $1 par, ................................................................. $    5,600,000           $    6,000,000
Paid-in capital—excess of par........................................................... 28,200,000               30,000,000
Paid-in capital—share repurchase........................................................... 150,000                               0

Retained earnings.......................................................................... 130,900,000*           131,300,000**

   Less: treasury stock, 400,000 shares (at cost)..................................................                 (2,450,000)
Total shareholders’ equity........................................................... $164,850,000           $164,850,000

* $86,500,000 – 600,000 + 14,000,000 + 15,000,000 + 16,000,000

**$86,500,000 + 14,000,000 + 15,000,000 + 16,000,000 – 200,000

or, alternatively:

Paid-in capital:
Common stock, $1 par, ................................................................. $    5,600,000           $    6,000,000
Additional paid-in capital.................................................................. 28,350,000               30,000,000

Retained earnings.......................................................................... 130,900,000*           131,300,000**

   Less: treasury stock, 400,000 shares (at cost)..................................................                 (2,450,000)
Total shareholders’ equity........................................................... $164,850,000           $164,850,000