Question

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

Shareholders' Equity Common stock, 5 million shares at $1 par $ 5,000,000
Paid-in capital—excess of par 25,000,000
Retained earnings 74,500,000
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 160,000 shares at $8 per share.
February 17, 2022: Reacquired 160,000 shares at $5.50 per share.
November 9, 2022: Sold 95,000 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 $13 million in 2021, $14 million in 2022, and $15 million in 2023. No dividends were paid during the three-year period.

Answer 1

1. Prepare the entries for each transaction assuming the shares are retired and accounted for as treasury stock. 2. at December 31, 2023, assuming the shares are retired and accounted for as treasury stock. 3. assuming the shares are retired and accounted as treasury stock.

Step-by-step explanation:

1. Retirement of Shares:

February 15, 2021:
Dr. Treasury Stock: $1,280,000
Cr. Cash: $1,280,000

February 17, 2022:
Dr. Treasury Stock: $880,000
Cr. Cash: $880,000

November 9, 2022:
Dr. Cash: $665,000
Cr. Treasury Stock: $665,000

2. Treasury Stock Method:

February 15, 2021:
Dr. Treasury Stock: $1,280,000
Cr. Common Stock: $1,280,000

February 17, 2022:
Dr. Treasury Stock: $880,000
Cr. Common Stock: $880,000

November 9, 2022:
Dr. Cash: $665,000
Cr. Treasury Stock: $665,000

3. Shareholders' Equity at December 31, 2023:

Retired Shares:

Common Stock: $5,000,000
Paid-in Capital—Excess of Par: $25,000,000
Retained Earnings: $104,515,000

Treasury Stock:

Common Stock: $5,000,000
Treasury Stock: ($2,825,000)

Answer 2

National Supply's Shareholder Equity Transactions

1. Share Transactions:

a. Shares Retired:

Date Account Title Debit Credit

Feb 15, 2021 Treasury Stock $1,280,000 Cash

Common Stock $160,000

Paid-in Capital - Excess of Par $1,120,000

Feb 17, 2022 Treasury Stock $880,000 Cash

Common Stock $160,000

Paid-in Capital - Excess of Par $720,000

Nov 9, 2022 Cash $665,000

Paid-in Capital - Excess of Par $55,000

Treasury Stock $720,000

b. Shares Accounted as Treasury Stock:

Date Account Title Debit Credit

Feb 15, 2021 Treasury Stock $1,280,000 Cash

Feb 17, 2022 Treasury Stock $880,000 Cash

Nov 9, 2022 Cash $665,000 Treasury Stock

Treasury Stock $720,000 Paid-in Capital - Excess of Par

$55,000

2. Shareholder Equity Section (2023):

a. Shares Retired:

Account Title Balance

Common Stock $4,840,000

Paid-in Capital - Excess of Par $23,100,000

Retained Earnings $116,500,000

Treasury Stock $0

b. Shares Accounted as Treasury Stock:

Account Title Balance

Common Stock $4,840,000

Paid-in Capital - Excess of Par $23,655,000

Retained Earnings $116,500,000

Treasury Stock $505,000