Concept explainers
Retirement of shares
• LO18–5
In 2018, Borland Semiconductors entered into the transactions described below. In 2015, Borland had issued 170 million shares of its $1 par common stock at $34 per share.
Required:
Assuming that Borland retires shares it reacquires, record the appropriate
- 1. On January 2, 2018, Borland reacquired 10 million shares at $32.50 per share.
- 2. On March 3, 2018, Borland reacquired 10 million shares at $36 per share.
- 3. On August 13, 2018, Borland sold 1 million shares at $42 per share.
- 4. On December 15, 2018, Borland sold 2 million shares at $36 per share.
Retired stock:
Buy back of shares from the shareholders by paying cash and obtaining the status of “authorized but unissued shares” is known as retired shares.
To Journalize: The transactions for B Semiconductors.
Explanation of Solution
(1)
Prepare journal entry, to record the required shares on January 2, 2018.
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
2018 | ||||
January | 2 | Common Stock | 10,000,000 | |
Paid-in Capital–Excess of Par | 330,000,000 | |||
Paid-in Capital–Share Repurchase |
15,000,000 | |||
Cash | 325,000,000 | |||
(To record retirement of common stock) |
Table (1)
- Common Stock is a stockholders’ equity account and the amount has decreased due to re-acquisition of common stock. Therefore, debit Common Stock account with $10,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has decreased due to decrease in capital. Therefore, debit Paid-in Capital–Excess of Par account with $330,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account. The amount has increased because cash paid for reacquisition is less than cash received while original issue of shares. Therefore, credit Paid-in Capital–Share Repurchase account with $15,000,000.
- Cash is an asset account. The amount is decreased because cash is paid for stock re-acquisition; therefore, credit Cash account with $325,000,000.
Working Notes:
Compute common stock value.
Compute excess of par value of shares.
Compute paid-in capital in excess of par value.
Note: Refer to Equation (2) for values and computations of excess of par value per share.
Compute cash paid amount.
Compute paid-in capital-share repurchase amount.
Note: Refer to Equations (1), (3), and (4) for values and computations of common stock, paid-in capital-excess of par value, and cash paid.
(2)
Prepare journal entry, to record the required shares on March 3, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
March | 3 | Common Stock | 10,000,000 | ||
Paid-in Capital–Excess of Par | 330,000,000 | ||||
Paid-in Capital–Share Repurchase | 15,000,000 | ||||
Retained Earnings | 5,000,000 | ||||
Cash | 360,000,000 | ||||
(To record retirement of common stock) |
Table (2)
- Common Stock is a stockholders’ equity account and the amount has decreased due to re-acquisition of common stock. Therefore, debit Common Stock account with $10,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has decreased due to decrease in capital. Therefore, debit Paid-in Capital–Excess of Par account with $330,000,000.
- Paid-in Capital–Share Repurchase is a stockholders’ equity account. The amount has decreased because cash paid for reacquisition is more than cash received while original issue of shares. Therefore, debit Paid-in Capital–Share Repurchase account with $15,000,000.
- Retained Earnings is a shareholders’ equity account. The amount has decreased because cash paid for reacquisition is more than cash received while original issue of shares. Therefore, debit Retained Earnings account with $5,000,000.
- Cash is an asset account. The amount is decreased because cash is paid for stock re-acquisition; therefore, credit Cash account with $360,000,000.
Working Notes:
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equation (2) for values and computations of excess of par value per share.
Compute cash paid amount.
Compute retained earnings amount.
Note: Refer to Equations (8), (6), (7), and (5) for values and computations of cash paid, common stock, paid-in capital-excess of par value, and paid-in capital–share repurchase values respectively.
(3)
Prepare journal entry, to record the sale of shares on August 13, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
August | 13 | Cash | 42,000,000 | ||
Common Stock | 1,000,000 | ||||
Paid-in Capital–Excess of Par | 41,000,000 | ||||
(To record issuance of common stock) |
Table (3)
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $42,000,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $1,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital–Excess of Par account with $41,000,000.
Working Notes:
Compute cash received.
Compute common stock value.
Compute paid-in capital in excess of par value.
Note: Refer to Equations (9) and (10) for values and computations of cash received and common stock value.
(4)
Prepare journal entry, to record the sale of shares on December 15, 2018.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 15 | Cash | 72,000,000 | ||
Common Stock | 2,000,000 | ||||
Paid-in Capital–Excess of Par |
70,000,000 | ||||
(To record issuance of common stock) |
Table (4)
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $72,000,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $2,000,000.
- Paid-in Capital–Excess of Par is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital–Excess of Par account with $70,000,000.
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.
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Chapter 18 Solutions
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