
Reacquired shares—comparison of retired shares and treasury shares
• LO18–5
National Supply’s shareholders’ equity included the following accounts at December 31, 2017:
Shareholders’ Equity | ($ in millions) |
Common stock, 6 million shares at $1 par | $ 6,000,000 |
Paid-in capital—excess of par | 30,000,000 |
86,500,000 |
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
February 15, 2018 Reacquired 300,000 shares at $8 per share.
February 17, 2019 Reacquired 300,000 shares at $5.50 per share.
2. Prepare the shareholders’ equity section of National Supply’s
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.
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.
To Journalize: The stock transactions for N Supply assuming the shares are retired.
Explanation of Solution
Transaction on February 15, 2018:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
February | 15 | Common Stock | 300,000 | ||
Paid-in Capital–Excess of Par | 1,500,000 | ||||
Retained Earnings | 600,000 | ||||
Cash | 2,400,000 | ||||
(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.
Transaction on February 17, 2019:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
February | 17 | Common Stock | 300,000 | ||
Paid-in Capital–Excess of Par | 1,500,000 | ||||
Paid-in-Capital-Share Repurchase | 150,000 | ||||
Cash | 1,650,000 | ||||
(To record retirement of common stock) |
Table (2)
Working Notes:
Compute common stock value.
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 paid-in-capital-share repurchase amount.
Note: Refer to Equations (8), (6), and (7) for values and computations of common stock, paid-in capital-excess of par value, and cash paid.
(b)

To Journalize: The stock transactions for N Supply assuming the shares are accounted as treasury stock.
Explanation of Solution
Transaction on February 15, 2018:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
February | 15 | Treasury Stock | 2,400,000 | ||
Cash | 2,400,000 | ||||
(To record purchase of treasury stock) |
Table (3)
Note: Refer to Equation (4) for values and computations of cash paid.
Transaction on February 17, 2019:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
February | 17 | Treasury Stock | 1,650,000 | ||
Cash | 1,650,000 | ||||
(To record purchase of treasury stock) |
Table (4)
Note: Refer to Equation (8) for values and computations of cash paid.
2. (a)

To Prepare: Stockholders’ equity section of balance sheet for N Supply assuming the shares is retired.
Explanation of Solution
Prepare stockholders’ equity section of balance sheet for N Supply assuming the shares is retired.
N Supply | |
Stockholders’ Equity Section | |
December 31, 2020 | |
Paid-in Capital | Amount ($) |
Common stock, $1 par value, 5,400,000 shares issued | $5,400,000 |
Paid-in capital – excess of par | 27,000,000 |
Paid-in capital – share repurchase | 150,000 |
Total paid-in capital | 32,550,000 |
Retained earnings | 130,900,000 |
Total paid-in capital and retained earnings | 163,450,000 |
Deduct: Treasury stock | (0) |
Total stockholders’ equity | $163,450,000 |
Table (5)
Working Notes:
Compute number of shares on December 31, 2020.
Particulars | Number of Shares |
Number of shares on December 31, 2017 | 6,000,000 |
Number of shares purchased on February 15, 2018 | (300,000) |
Number of shares purchased on February 17, 2019 | (300,000) |
Number of shares on December 31, 2020 | 5,400,000 |
Table (6)
Compute paid-in-capital excess of par value.
Particulars | Amount ($) |
Balance on December 31, 2017 | 30,000,000 |
Paid-in-capital excess of par due to transaction on February 15 | (1,500,000) |
Paid-in-capital excess of par due to transaction on February 17 | (1,500,000) |
Balance on December 31, 2020 | $27,000,000 |
Table (7)
Note: Refer to Equations (3), and (7) for value and computation of paid-in-capital excess of par values on February 15, and February 17 respectively.
Compute retained earnings value.
Particulars | Amount ($) |
Balance on December 31, 2015 | 86,500,000 |
Retained earnings value due to transaction on February 15 | (600,000) |
Net income in 2018 | 14,000,000 |
Net income in 2017 | 15,000,000 |
Net income in 2020 | 16,000,000 |
Balance on December 31, 2020 | $130,900,000 |
Table (8)
Note: Refer to Equation (5) for value and computation of retained earnings value.
(b)

To Prepare: Stockholders’ equity section of balance sheet for N Supply assuming the shares is bought as treasury stock.
Explanation of Solution
Prepare stockholders’ equity section of balance sheet for N Supply assuming the shares are bought as treasury stock.
N Supply | |
Stockholders’ Equity Section | |
December 31, 2020 | |
Paid-in Capital | Amount ($) |
Common stock, $1 par value, 6,000,000 shares issued | $6,000,000 |
Paid-in capital – excess of par | 30,000,000 |
Total paid-in capital | 36,000,000 |
Retained earnings | 131,500,000 |
Total paid-in capital and retained earnings | 167,500,000 |
Deduct: Treasury stock, 600,000 shares (at cost) | (4,050,000) |
Total stockholders’ equity | $163,450,000 |
Table (9)
Working Notes:
Compute retained earnings value.
Particulars | Amount ($) |
Balance on December 31, 2017 | 86,500,000 |
Net income in 2018 | 14,000,000 |
Net income in 2019 | 15,000,000 |
Net income in 2020 | 16,000,000 |
Balance on December 31, 2020 | $131,500,000 |
Table (10)
Note: Refer to Equation (14) for value and computation of retained earnings value.
Compute treasury stock value.
Particulars | Amount ($) |
Treasury stock due to transaction on February 15, 2018 | (2,400,000) |
Treasury stock due to transaction on February 17, 2019 | (1,650,000) |
Balance on December 31, 2020 | $(4,050,000) |
Table (11)
Note: Refer to journal entries recorded on February 15 and February 17 in requirement 1 (b).
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