Chapter 8, Problem 13E

Exercise 8-13 Recording and reporting treasury stock transactions

The following information pertains to JAE Corp. at January 1, 2018:

JAE Corp. completed the following transactions during 2018:

1. 1. Issued 3,000 shares of $10 par common stock for $25 per share.
2. 2. Repurchased 500 shares of its own common stock for $26 per share.
3. 3. Resold 200 shares of treasury stock for $30 per share.

Required

1. a. How many shares of common stock were outstanding at the end of the period?
2. b. How many shares of common stock had been issued at the end of the period?
3. c. Organize the transactions data in accounts under the accounting equation.
4. d. Prepare the stockholders’ equity section of the balance sheet reflecting these transactions. Include the number of shares authorized, issued, and outstanding in the description of the common stock.

To determine

Ascertain the total number of outstanding shares at the end of the period.

Explanation of Solution

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.

Ascertain the total number of outstanding shares at the end of the period:

Common Stock	Outstanding
Beginning Number of Shares	2,000
Issued during 2016	3,000
Less: Repurchased as Treasury Stock	(500)
Resold Treasury Stock	200
Ending number of shares	4,700

Table (1)

Therefore, the total number of outstanding shares at the end of the period is 4,700 shares.

To determine

Ascertain the total number of issued shares at the end of the period.

Explanation of Solution

Ascertain the total number of issued shares at the end of the period:

Common Stock	Issued
Beginning Number of Shares	2,000
Issued during 2016	3,000
Ending Number of Shares	5,000

Table (2)

Therefore, the total number of issued shares at the end of the period is 5,000 shares.

To determine

Organize the transactions data in accounts under the accounting equation.

Explanation of Solution

Organize the transactions data in accounts under the accounting equation:

Table (3)

Working note:

(1) Calculate the value of cash received from the issuance of common stock:

$\begin{array}{c}\text{Cash received = Number of shares }\times \text{ Issued value of common stock}\\ \text{= 3,000 shares × \$25}\\ \text{= \$75,000}\end{array}$

(2) Calculate the value of common stock issued at par value:

$\begin{array}{c}\begin{array}{l}\text{Common }\\ \text{stock value}\end{array}\}\text{ = Number of shares }\times \text{ Par value of common stock}\\ \text{= 3,000 shares × \$10}\\ \text{= \$30,000}\end{array}$

(3) Calculate the value of paid-in capital in excess of par value:

$\begin{array}{c}\begin{array}{l}\text{Paid-in capital in }\\ \text{excess of par value}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Cash received }\left(1\right)\text{–}\\ \text{Common stock value }\left(2\right)\end{array}\right)\\ \text{= \$75},000\text{ – \$30,000}\\ \text{= \$45,000}\end{array}$

(4) Calculate the value of treasury stock:

$\begin{array}{c}\text{Treasury stock = }\left[\begin{array}{l}\text{Number of repurchase shares}\times \\ \text{ Value of per share}\end{array}\right]\\ \text{=500}\times \text{\$26 per share}\\ \text{=\$13,000}\end{array}$

(5) Calculate the value of cash received from the resold of treasury stock:

$\begin{array}{c}\text{Cash received = Number of resold shares }\times \text{ Selling price per share}\\ \text{= 200 shares × \$30}\\ \text{= \$6,000}\end{array}$

(6) Calculate the value of treasury stock resold at original cost:

$\begin{array}{c}\text{Treasury stock = Number of resold shares }\times \text{ Original cost per share}\\ \text{= 200 shares × \$26}\\ \text{= \$5,200}\end{array}$

(7) Calculate the value of paid-in capital in excess of cost, TS:

$\begin{array}{c}\begin{array}{l}\text{Paid-in capital in }\\ \text{excess of cost}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Cash received }\left(5\right)\text{–}\\ \text{Common stock value }\left(6\right)\end{array}\right)\\ \text{= \$6},000\text{ – \$5,200}\\ \text{= \$800}\end{array}$

To determine

Prepare the stockholder’s equity section of the balance sheet.

Explanation of Solution

Stockholders’ Equity Section: Stockholder’s equity section is 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 the stockholder’s equity section of the balance sheet:

Stockholders’ Equity	$	$
Common Stock, $10 par value, 20,000 shares authorized, 5,000 shares issued, and 4,700 shares outstanding	50,000
Paid-In Capital in Excess of Par, Common	60,000
Paid-In Capital in Excess of Cost, TS	800
Total Paid-In Capital		110,800
Add: Retained Earnings		82,000
Less: Treasury Stock		(7,800)
Total Stockholders’ Equity		185,000

Table (6)

Therefore, the total value of stockholder’s equity at the end of the year is $185,000.