Share buyback—comparison of retirement and
• LO18–5
The shareholders’ equity section of the
Shareholders’ Equity | ($ in millions) |
Common stock, 240 million shares at $1 par | $ 240 |
Paid-in capital—excess of par | 1,680 |
Paid-in capital—share repurchase | 1 |
1,100 |
Required:
- 1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions. Prepare the entries for both the purchase and subsequent resale of the shares assuming the shares are (a) retired and (b) viewed as treasury stock.
- a. On February 5, 2018, TNL Systems purchased 6 million shares at $10 per share.
- b. On July 9, 2018, the corporation sold 2 million shares at $12 per share.
- c. On November 14, 2020, the corporation sold 2 million shares at $7 per share.
- 2. Prepare the shareholders’ equity section of TNL Systems’ balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018–2020 was distributed to shareholders as cash dividends.
1. a.

Buyback of Shares
Retire stock:
Buy back of shares from the shareholders by paying cash and obtaining the status of “authorized but unissued shares are known as retired shares.
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 stock transactions for Incorporation T assuming the shares are retired.
Explanation of Solution
Journalize the stock transactions for Incorporation T assuming the shares are retired.
Transaction on February 5, 2018:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
February | 5 | Common Stock (1) | 6,000,000 | ||
Paid-in Capital–Excess of Par (3) | 42,000,000 | ||||
Paid-in Capital–Share Repurchase | 1,000,000 | ||||
Retained Earnings (5) | 11,000,000 | ||||
Cash (4) | 60,000,000 | ||||
(To record retirement of common stock) |
Table (1)
Working Notes:
Compute common stock value.
Compute excess of par value of shares.
Compute paid-in capital in excess of par value.
Note: Refer to Equation (2) for values and computations of excess of par value per share.
Compute cash paid amount.
Compute retained earnings amount.
Note: Refer to Equations (1), (3), and (4) for values and computations of common stock, paid-in capital-excess of par value, and cash paid.
b.
Transaction on July 9, 2018:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
July | 9 | Cash (6) | 24,000,000 | ||
Common Stock (7) | 2,000,000 | ||||
Paid-in Capital–Excess of Par (8) | 22,000,000 | ||||
(To record sale of common stock) |
Table (2)
Working Notes:
Compute cash received.
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equations (6) and (7) for values and computations of cash received and common stock value.
c.
Transaction on November 14, 2020:
Date | Account Titles and Explanation | Debit ($) | Credit ($) | ||
2018 | |||||
November | 14 | Cash (9) | 14,000,000 | ||
Common Stock (10) | 2,000,000 | ||||
Paid-in Capital–Excess of Par (11) | 12,000,000 | ||||
(To record sale of common stock) |
Table (3)
Working Notes:
Compute cash received.
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equations (9) and (10) for values and computations of cash received and common stock value.
b.

To Journalize: The stock transactions for Incorporation T assuming the shares are repurchased as treasury stock.
Explanation of Solution
Journalize the stock transactions for Incorporation T assuming the shares are repurchased as treasury stock.
a.
Transaction on February 5, 2018:
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
2018 | ||||
February | 5 | Treasury Stock (4) | 60,000,000 | |
Cash (4) | 60,000,000 | |||
(To record purchase of treasury stock) |
Table (4)
Note: Refer to Equation (4) for values and computations of cash paid.
b.
Transaction on July 9, 2018:
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
2018 | ||||
July | 9 | Cash | 24,000,000 | |
Treasury Stock (12) | 20,000,000 | |||
Paid-in Capital–Share Repurchase (13) | 4,000,000 | |||
(To record sale of treasury stock) |
Table (5)
Working Notes:
Compute treasury stock value.
Compute paid-in capital–share repurchase value.
Note: Refer to Equations (6) and (12) for the values and computations of cash received and treasury stock value at cost.
c.
Transaction on November 14, 2020:
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
2020 | ||||
November | 14 | Cash | 14,000,000 | |
Paid-in Capital–Share Repurchase (15) | 5,000,000 | |||
Retained Earnings (16) | 1,000,000 | |||
Treasury Stock (14) | 20,000,000 | |||
(To record sale of treasury stock) |
Table (6)
Working Notes:
Compute treasury stock value.
Compute paid-in-capital repurchase value.
Compute retained earnings value.
Note: Refer to Equations (14), (9), and (15) for the values and computations of treasury stock value at cost, cash received, and paid-in capital–share repurchase values respectively.
2.

To prepare: The stockholders’ equity section of balance sheet for Incorporation T assuming the shares are retired.
Explanation of Solution
Stockholders’ Equity Section: It is refers to the section of the balance sheet that shows the available balance stockholders’ equity as on reported date at the end of the financial year.
Prepare stockholders’ equity section of balance sheet for Incorporation T assuming the shares are retired.
Incorporation T | |
Stockholders’ Equity Section | |
December 31, 2020 | |
Paid-in Capital | Amount ($) |
Common stock, $1 par value, 238,000,000 shares issued |
$238,000,000 |
Paid-in capital – excess of par | 1,672,000,000 |
Total paid-in capital | 1,910,000,000 |
Retained earnings | 1,089,000,000 |
Total paid-in capital and retained earnings | 2,999,000,000 |
Deduct: Treasury stock | (0) |
Total stockholders’ equity | $2,999,000,000 |
Table (7)
Working Notes:
Compute number of shares on December 31, 2020.
Particulars | Number of Shares |
Number of shares on December 31, 2017 | 240,000,000 |
Number of shares purchased on February 5 | (6,000,000) |
Number of shares sold on July 9 | 2,000,000 |
Number of shares sold on November 14 | 2,000,000 |
Number of shares on December 31, 2020 | 238,000,000 |
Table (8)
Compute paid-in-capital excess of par value.
Particulars | Amount ($) |
Balance on December 31, 2018 | 1,680,000,000 |
Paid-in-capital excess of par due to transaction on February 5 | (42,000,000) |
Paid-in-capital excess of par due to transaction on July 9 | 22,000,000 |
Paid-in-capital excess of par due to transaction on November 14 | 12,000,000 |
Balance on December 31, 2020 | $1,672,000,000 |
Table (9)
Note: Refer to Equations (3), (8), and (11) for value and computation of paid-in-capital excess of par values on February 5, July 9, and November 14 respectively.
Compute retained earnings value.
Particulars | Amount ($) |
Balance on December 31, 2017 | 1,100,000,000 |
Paid-in-capital excess of par due to transaction on February 5 | (11,000,000) |
Balance on December 31, 2020 | $1,089,000,000 |
Table (10)
Note: Refer to Equation (5) for value and computation of retained earnings value.
Prepare stockholders’ equity section of balance sheet for Incorporation T assuming the shares are bought as treasury stock.
Incorporation T | |
Stockholders’ Equity Section | |
December 31, 2020 | |
Paid-in Capital | Amount ($) |
Common stock, $1 par value, 240,000,000 shares issued |
$240,000,000 |
Paid-in capital – excess of par | 1,680,000,000 |
Total paid-in capital | 1,920,000,000 |
Retained earnings | 1,099,000,000 |
Total paid-in capital and retained earnings | 3,019,000,000 |
Deduct: Treasury stock | (20,000,000) |
Total stockholders’ equity | $2,999,000,000 |
Table (11)
Working Notes:
Compute retained earnings value.
Particulars | Amount ($) |
Balance on December 31, 2017 | 1,100,000,000 |
Paid-in-capital excess of par due to transaction on November 14 | (1,000,000) |
Balance on December 31, 2020 | $1,099,000,000 |
Table (12)
Note: Refer to Equation (16) for value and computation of retained earnings value.
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