Answered: Required: Identify the type of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2018 to discontinue accounting for reacquired shares as treasury stock. Instead, shares repurchased will be viewed as having been retired, reassuming the status of unissued shares. As part of the change, treasury shares held were reclassified as retired stock. At December 31, 2017, UMC’s balance sheet reported the following shareholders’ equity:

	($ in millions)
Common stock, $1 par		$	300
Paid-in capital—excess of par			1,200
Retained earnings			1,156
Treasury stock (6.0 million shares at cost)			(125	)
Total shareholders’ equity		$	2,531

Required:
Identify the type of accounting change this decision represents and prepare the journal entry to effect the reclassification of treasury shares as retired shares.

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