
Concept explainers
• LO18–5
At December 31, 2017, the
Shareholders’ Equity | ($ in millions) |
Common stock, 60 million shares at $1 par | $ 60 |
Paid-in capital—excess of par | 300 |
410 |
Required:
Assuming that Meca International views its share buybacks as treasury stock, record the appropriate
1. On February 12, 2018, Meca reacquired 1 million common shares at $13 per share.
2. On June 9, 2019, Meca reacquired 2 million common shares at $10 per share.
3. On May 25, 2020, Meca sold 2 million treasury shares at $15 per share. Determine cost as the weighted-average cost of treasury shares.
4. For the previous transaction, assume Meca determines the cost of treasury shares by the FIFO method.

Treasury Stock: It refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement.
To Journalize: The treasury stock transactions for M International.
Explanation of Solution
(1)
Journalize the shares required (reacquired as treasury stock) on February 12, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
February | 12 | Treasury Stock | 13,000,000 | ||
Cash | 13,000,000 | ||||
(To record purchase of treasury stock) |
Table (1)
- Treasury Stock is stockholders’ equity account. The amount has decreased because common stock is purchased as treasury stock. Therefore, debit Treasury Stock account with $13,000,000.
- Cash is an asset account and the amount is decreased because cash is paid to buy treasury stock. Therefore, credit Cash account with $13,000,000.
Working Note:
Compute the treasury stock amount.
(2)
Journalize the shares required (reacquired as treasury stock) on June 9, 2019.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
June | 9 | Treasury Stock | 20,000,000 | ||
Cash | 20,000,000 | ||||
(To record purchase of treasury stock) |
Table (2)
- Treasury Stock is stockholders’ equity account. The amount has decreased because common stock is purchased as treasury stock. Therefore, debit Treasury Stock account with $20,000,000.
- Cash is an asset account and the amount is decreased because cash is paid to buy treasury stock. Therefore, credit Cash account with $20,000,000.
Working Note:
Compute the treasury stock amount.
(3)
Journalize the sale of treasury stock on May 25, 2020 (Use weighted average cost method to determine the cost of treasury stock).
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
May | 25 | Cash | 30,000,000 | ||
Treasury Stock | 22,000,000 | ||||
Paid-in Capital–Share Repurchase |
8,000,000 | ||||
(To record sale of treasury stock) |
Table (3)
- Cash is asset account. The amount is increased because cash is received on sale of treasury stock. Therefore, debit Cash account with $30,000,000.
- Treasury Stock is a stockholders’ equity account and the equity amount has increased due to sale of treasury stock. Therefore, credit Treasury Stock account with $22,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account and the amount has increased because treasury stock is sold for more than the price purchased. Therefore, credit Paid-in Capital–Share Repurchase account with $8,000,000.
Working Notes:
Compute cash received.
Compute treasury stock at weighted average cost.
Note: Refer to transactions 1 and 2 for values and computations of treasury stock amount and number of treasury shares.
Compute treasury stock value.
Note: Refer to Equation (2) for value and computation of weighted average cost of treasury shares.
Compute paid-in capital–share repurchase value.
Note: Refer to Equations (1) and (3) for the values and computations of cash received and treasury stock value at cost.
(4)
Journalize the sale of treasury stock on May 25, 2020 (Use FIFO method to determine the cost of treasury stock).
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
May | 25 | Cash | 30,000,000 | ||
Treasury Stock | 23,000,000 | ||||
Paid-in Capital–Share Repurchase |
7,000,000 | ||||
(To record sale of treasury stock) |
Table (4)
- Cash is asset account. The amount is increased because cash is received on sale of treasury stock. Therefore, debit Cash account with $30,000,000.
- Treasury Stock is a stockholders’ equity account and the equity amount has increased due to sale of treasury stock. Therefore, credit Treasury Stock account with $23,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account and the amount has increased because treasury stock is sold for more than the price purchased. Therefore, credit Paid-in Capital–Share Repurchase account with $7,000,000.
Working Notes:
Compute cash received.
Compute treasury stock at first-in-first-out (FIFO) cost for first 1,000,000 shares.
Compute treasury stock at first-in-first-out (FIFO) cost for next 1,000,000 shares.
Compute total treasury stock value.
Note: Refer to Equations (5) and (6) for values and computations of treasury stock value for first 1,000,000 shares and treasury stock value for next 1,000,000 shares.
Compute paid-in capital–share repurchase value.
Note: Refer to Equations (4) and (7) for the values and computations of cash received and treasury stock value at cost.
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