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Chapter 15: Question 2P (page 819)

(Treasury Stock Transactions and Presentation) Clemson Company had the following stockholders’ equity as of January 1, 2017

Common stock, \(5 par value, 20,000 shares issued \)100,000

Paid-in capital in excess of par—common stock 300,000

Retained earnings 320,000

Total stockholders’ equity \(720,000

During 2017, the following transactions occurred.

Feb.1 Clemson repurchased 2,000 shares of treasury stock at a price of \)19

per share.

Mar.1 800 shares of treasury stock repurchased above were reissued at \(17

per share.

Mar.18 500 shares of treasury stock repurchased above were reissued at \)14

per share.

Apr. 22 600 shares of treasury stock repurchased above were reissued at \(20

per share.

Instructions

  1. Prepare the journal entries to record the treasury stock transactions in 2017, assuming Clemson uses the cost method.
  2. Prepare the stockholders’ equity section as of April 30, 2017. Net income for the first 4 months of 2017 was \)130,000.

Short Answer

Expert verified

The total debit and credit balance of Journal is $74,700and total shareholders’ equity is $844,600

Step by step solution

01

Meaning of Reissue of Shares

Shares re-issue refers to the process of re-issuing treasury stock in the open market for the purpose of raising more money for business operations.

02

Preparing Journal Entries

Date

Particular

Debit $

Credit $

February 1

Treasury Stock

38,000

Cash

38,000

To record the issue of shares

March 1

Cash

13,600

Retained Earnings

1,600

Treasury Stock

15,200

To record issue of share

March 18

Cash

7,000

Retained Earnings

2,500

Treasury Stock

9,500

To record issue of share

April 22

Cash

12,000

Treasury Stock

11,400

Paid-in Capital from Treasury Stock

600

To record issue of share

03

Preparing Stockholders’ Equity Section

CLEMSON COMPANY

Stockholders’ Equity

April 30, 2014


Common stock ,$5par value,20,000 shares

Issued,19,900 shares outstanding

$100,000

Paid-in Capital in Excess of par-common stock

300,000

Paid-in capital from treasury stock

600

Total paid-in capital

$400,600

Retained Earnings

445900

Less: Treasury Stocks

1,900

Total Stockholders’ Equity

$844,600

Working note:-

Computation of Retained Earnings

Retained Earnings (beginning balance)

$320,000

March 1 reissuance

(1,600)

March 18 reissuance

(2500)

Net Income for period

130,000

Retained Earnings (ending balance)

$445,900

Computation of Treasury Stock

Treasury Stock (beginning balance)

0

February 1 purchase (2,000)

38,000

March 1 sale (800 shares)

(15,200)

March 18 sale (500 shares)

(9,500)

April 12 sale (600 shares)

(11,400)

Treasury stock (ending balance)

$ 1,900

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Most popular questions from this chapter

Discuss the propriety of showing:

  1. Treasury stock as an asset.
  2. “Gain” or “loss” on sale of treasury stock as additions to or deductions from income.
  3. Dividends received on treasury stock as income.

Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, statement of financial position? How should these dividends be reported?
  2. If the preference shares are convertible into seven shares of \(10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
  3. If the preference shares were issued at \)107 per share, how should the preference shares be reported in the equity section?

(Treasury Stock—Ethics) Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation’s CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation’s cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. Should Kenseth authorize the transaction?

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?

This comment appeared in the annual report of MacCloud Inc.: “The Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B common stock. But if the Company pays any cash or property dividends on the Class B common stock, it would be required to pay at least the same dividend on the Class A common stock.” How is a property dividend accounted for in the financial records?
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