1B iv. Statement of Changes in Equity

Question 1

Two ways of accounting for treasury stock

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Par Value Method

Answer 1

Cost Method

Question 2

Two ways of accounting for treasury stock

Cost Method

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Answer 2

Par Value Method

Question 3

What Financial Statement does the Purchase of T Stock affect?

Answer 3

The balance sheet

It will affect the equity section

In A = L+ E, when you use cash to purchase, the A decreases which means the E has to decrease too

Question 4

What kind of Equity Account is T Stock

Answer 4

A contra Equity Account

Question 5

What happens to Stockholders equity when T Stock is acquired

Answer 5

Stockholders equity decreases

Question 6

How does a company recognize gain or loss on the acquisition of T Stock

Answer 6

Gain or loss is not recognized

A firm can never recognize gain or loss when dealing with its own stock

Question 7

When a Company buys back its own shares, are the shares automatically retired?

Answer 7

No, they can decide to retire it, but it;s not automatic

Question 8

• Issuance of 20k shares of company x $4 par value
  common stock for $5 on 1/1 yr 1.
• On 5/1 yr 2, repurchase of 500 shares @ $4.
• June yr 2, resale of 250 shares @$5
• Resale of 250 @ $1 Nov yr 2

Using the Cost Method, how do you record the issuance of common stock

Answer 8

Cash 100,000
Common Stock. 80,000
APIC - Common Stock 20,000

Question 9

When issuing Common stock, how do you determine the amounts for each account

1. Cash
2. Common Stock
3. APIC - C/S

Answer 9

1. Cash received (#shares x price issued at)
2. Common Stock (Par value x #shares)
3. APIC -CS (Difference between 1 and 2)

Question 10

• Issuance of 20k shares of company x $4 par value
  common stock for $5 on 1/1 yr 1.
• On 5/1 yr 2, repurchase of 500 shares @ $4.
• June yr 2, resale of 250 shares @$5
• Resale of 250 @ $1 Nov yr 2

Using the COST METHOD - how do you record Repurchase of 500 Shares?

Answer 10

Treasury Stock 2,000

Cash 2,000

Question 11

When Acquiring Treasury stock (repurchasing your own shares) - Under the COST METHOD - What accounts are effected, how to determine amount for each account

Answer 11

Dr Treasury Stock
Cr. Cash

For shares repurchased x Cost

Question 12

Issuance of 20k shares of company x $4 par value common stock for $5 on 1/1 yr 1.
On 5/1 yr 2, repurchase of 500 shares @ $4.
June yr 2, resale of 250 shares @$5
Resale of 250 @ $1 Nov yr 2

Under the COST METHOD - How do you record the resale of 250 shares @ $5

Answer 12

Cash $1,250
Treasury Stock 1,000
APIC - TS 250

Cash for what you sold it for

• • T/S is credited for cost x shares (250 x 4)
• *Since it’s uneven, you have a plug of $250 for APIC -TS

Question 13

Where you reissue treasury stock at higher price than you acquired it - under the COST METHOD- what accounts are affected, and how is each amount determined

Answer 13

Dr Cash (for sell price x # stocks) 
Cr TS (for cost x #stocks) 
Cr APIC -TS (Excess of selling price and cost)

Question 14

What kind of account is APIC - TS?

Answer 14

Equity Account

Question 15

Where is APIC-TS reported?

Answer 15

Balance sheet

Question 16

Issuance of 20k shares of company x $4 par value common stock for $5 on 1/1 yr 1.
On 5/1 yr 2, repurchase of 500 shares @ $4.
June yr 2, resale of 250 shares @$5
Resale of 250 @ $1 Nov yr 2

COST METHOD
How do you account for Nov Yr 2 Resale of 250 shares @ $1

*Note there’s APIC TS of $250 from last example

Answer 16

Cash. $250
APIC TS $250
Retained Earnings $500
Treasury Stcok $1000

Question 17

When reissuing a TS at a price lower than acquisition -Under the COST METHOD- What accounts are affected, and what amounts?

Answer 17

DR Cash (Sale price $ shares)
*DR APIC TS (Amount in APIC TS from last example)
*DR R/E (Amount you still need to even out Dr & CR)
CR TS (Cost x #shares)

*Start with Cash and TS, then you realize you need more on Dr side because there’s more TS.
First Dr APIC TS for as much as you can, if/when it evens out
If theres not enough in APIC TS to even out, use the rest against Retained Earnings

Question 18

When reissuing a TS at a price lower than acquisition -Under the COST METHOD - The Cr. side (TS) is larger than Dr side (Cash)? - What plugs do you do to even it out?

Answer 18

Plug APIC TS as much as you can, if there’s enough to even out, then that’s it…

if there’s not enough, dr r/e for the rest of the amount

Question 19

When reissuing a TS at a price lower than acquisition -Under the COST METHOD - The Cr. side (TS) is larger than Dr side (Cash) - You’ve already plugged APIC TS for all you have - but it’s still not even - what’s next to plug

Answer 19

Plug R/E for the rest

Question 20

Issuance of 20k shares of company x $4 par value common stock for $5 on 1/1 yr 1.
On 5/1 yr 2, repurchase of 500 shares @ $4.
June yr 2, resale of 250 shares @$5
Resale of 250 @ $1 Nov yr 2

Under the PAR VALUE METHOD, record repurchase of 500 Shares

Answer 20

T/S 2,000
APIC - CS 500
Cash 2,000
APIC TS. 500

Question 21

Under the PAR VALUE METHOD - When acquiring Treasury stock, what accounts are affected and for what amounts?

Answer 21

Dr T/S (Par value x # shares)
*Dr APIC -CS (Plug using pro rata)

     Cr Cash (Cost x #Shares) 
     Cr APIC - TS (Plug to even out)

Question 22

Under the PAR VALUE METHOD - When acquiring Treasury stock. The TS and Cash accounts are uneven, how do you even it out?

Answer 22

Dr. APIC -CS at a pro-rata amount

CR. APIC TS to even out the rest

Question 23

Under the PAR VALUE METHOD - When acquiring Treasury stock? How do you do the Pro Rate for APIC- CS?

Answer 23

Cross Multiply …
(#Shares issued/#shares repurchased) x (APIC - CS from issuance/ x)
= APIC - CS for this entry

Question 24

Issuance of 20k shares of company x $4 par value common stock for $5 on 1/1 yr 1.
On 5/1 yr 2, repurchase of 500 shares @ $4.
June yr 2, resale of 250 shares @$5
Resale of 250 @ $1 Nov yr 2

Under PAR VALUE METHOD - How do you account for sale of 250 shares @$5

Answer 24

Cash 1,250
T/S 1,000
APIC CS. 250

Question 25

When issuing Treasury Stock for a price higher than acquisition price - under PAR VALUE METHOD - What accounts are affects and what amounts

Answer 25

Dr. Cash (Price x #shares)
Cr. Treasury Stock (# shares x par value)
Cr. APIC - CS ( Plug)

When using the PV Method use APIC CS, in the cost method you did APIC TS

Question 26

When issuing Treasury Stock for a price higher than acquisition price - You Dr Cash and Cr TS and Cr a Plug account? - Under the COST METHOD - What is the plug account?

Answer 26

APIC -TS

Question 27

When issuing Treasury Stock for a price higher than acquisition price - You Dr Cash and Cr TS and Cr a Plug account? - Under the PAR VALUE METHOD - What is the plug account?

Answer 27

APIC - CS

Question 28

When issuing Treasury Stock for a price higher than acquisition price - You Dr Cash and Cr TS and Cr a Plug account?

Under each method (Cost & Par Value) The plugs are different, what are the plugs for each?

Answer 28

Cost = APIC TS

PV Method = APIC CS

Question 29

Issuance of 20k shares of company x $4 par value common stock for $5 on 1/1 yr 1.
On 5/1 yr 2, repurchase of 500 shares @ $4.
June yr 2, resale of 250 shares @$5
Resale of 250 @ $1 Nov yr 2

Under PAR VALUE MEHTOD How do record resale of 250 shares @ 1?

Answer 29

Cash $250
APIC - TS $500
R/E $250

TS                $1,000

Question 30

When reselling shares of treasury stock at a price lower than acquisition cost - you Dr Cash % Cr TS - Treasury Stock is higher - What do you Dr as a plug to even out

Answer 30

APIC - TS

As much as you can to even out,

if it still doesn’t even out, Dr Retained Earnings for the rest