1B iv. Statement of Changes in Equity Flashcards
Two ways of accounting for treasury stock
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Par Value Method
Cost Method
Two ways of accounting for treasury stock
Cost Method
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Par Value Method
What Financial Statement does the Purchase of T Stock affect?
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
What kind of Equity Account is T Stock
A contra Equity Account
What happens to Stockholders equity when T Stock is acquired
Stockholders equity decreases
How does a company recognize gain or loss on the acquisition of T Stock
Gain or loss is not recognized
A firm can never recognize gain or loss when dealing with its own stock
When a Company buys back its own shares, are the shares automatically retired?
No, they can decide to retire it, but it;s not automatic
- 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
Cash 100,000
Common Stock. 80,000
APIC - Common Stock 20,000
When issuing Common stock, how do you determine the amounts for each account
- Cash
- Common Stock
- APIC - C/S
- Cash received (#shares x price issued at)
- Common Stock (Par value x #shares)
- APIC -CS (Difference between 1 and 2)
- 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?
Treasury Stock 2,000
Cash 2,000
When Acquiring Treasury stock (repurchasing your own shares) - Under the COST METHOD - What accounts are effected, how to determine amount for each account
Dr Treasury Stock
Cr. Cash
For shares repurchased x Cost
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
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
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
Dr Cash (for sell price x # stocks) Cr TS (for cost x #stocks) Cr APIC -TS (Excess of selling price and cost)
What kind of account is APIC - TS?
Equity Account
Where is APIC-TS reported?
Balance sheet
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
Cash. $250
APIC TS $250
Retained Earnings $500
Treasury Stcok $1000
When reissuing a TS at a price lower than acquisition -Under the COST METHOD- What accounts are affected, and what amounts?
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
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?
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
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
Plug R/E for the rest
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
T/S 2,000
APIC - CS 500
Cash 2,000
APIC TS. 500
Under the PAR VALUE METHOD - When acquiring Treasury stock, what accounts are affected and for what amounts?
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)
Under the PAR VALUE METHOD - When acquiring Treasury stock. The TS and Cash accounts are uneven, how do you even it out?
Dr. APIC -CS at a pro-rata amount
CR. APIC TS to even out the rest
Under the PAR VALUE METHOD - When acquiring Treasury stock? How do you do the Pro Rate for APIC- CS?
Cross Multiply …
(#Shares issued/#shares repurchased) x (APIC - CS from issuance/ x)
= APIC - CS for this entry
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
Cash 1,250
T/S 1,000
APIC CS. 250
