Question

Borner Communications’ articles of incorporation authorized the issuance of 130 million

common shares. The transactions described below effected changes in Borner’s outstanding
shares. Prior to the transactions, Borner’s shareholders’ equity included the following:
Shareholders’ Equity ($ in millions)
Common stock, 100 million shares at $1 par $100
Paid-in capital—excess of par 300
Retained earnings 210
Required:
Assuming that Borner Communications retires shares it reacquires (restores their status to that of
authorized but unissued shares), record the appropriate journal entry for each of the following
transactions:
1. On January 7, 2013, Borner reacquired 2 million shares at $5.00 per share.
2. On August 23, 2013, Borner reacquired 4 million shares at $3.50 per share.
3. On July 25, 2014, Borner sold 3 million common shares at $6 per share.

Answer 1

Step-by-step explanation:

On January 7, 2013, Borner reacquired 2 million shares at $5.00 per share.

The total cost of reacquiring 2 million shares is:

2,000,000 shares x $5.00 per share = $10,000,000

To record the reacquisition of shares, we need to reduce the common stock and paid-in capital accounts by the par value of the shares reacquired and the excess of the reacquisition cost over the par value should be recorded as a reduction in retained earnings. The journal entry to record the transaction is:

Retained Earnings $ 10,000,000

Common Stock $2,000,000

Paid-in Capital in Excess of Par $8,000,000

(To record the reacquisition of 2 million common shares)

On August 23, 2013, Borner reacquired 4 million shares at $3.50 per share.

The total cost of reacquiring 4 million shares is:

4,000,000 shares x $3.50 per share = $14,000,000

To record the reacquisition of shares, we need to reduce the common stock and paid-in capital accounts by the par value of the shares reacquired and the excess of the reacquisition cost over the par value should be recorded as a reduction in retained earnings. The journal entry to record the transaction is:

Retained Earnings $ 14,000,000

Common Stock $4,000,000

Paid-in Capital in Excess of Par $10,000,000

(To record the reacquisition of 4 million common shares)

On July 25, 2014, Borner sold 3 million common shares at $6 per share.

The total proceeds from the sale of 3 million shares is:

3,000,000 shares x $6.00 per share = $18,000,000

To record the issuance of shares, we need to increase the common stock and paid-in capital accounts by the par value and the excess of the proceeds over the par value. The journal entry to record the transaction is:

Cash $ 18,000,000

Common Stock $3,000,000

Paid-in Capital in Excess of Par $15,000,000

(To record the issuance of 3 million common shares at $6 per share)