The shareholders’ equity section of the balance sheet of TNL Systems Inc. includ

Question

The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017:

Required:
1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions. Prepare the entries for both the purchase and subsequent resale of the shares assuming the shares are (a) retired and (b) viewed as treasury stock.

On February 5, 2018, TNL Systems purchased 9 million shares at $10 per share.

On July 9, 2018, the corporation sold 4 million shares at $12 per share.

On November 14, 2020, the corporation sold 4 million shares at $7 per share.

2. Prepare the shareholders’ equity section of TNL Systems’ balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018–2020 was distributed to shareholders as cash dividends.

Shareholders' Equity ($ in millions) Common stock, 220 million shares at $1 par $ 220 Paid-in capital—excess of par 1,540 Paid-in capital—share repurchase 1 Retained earnings 1,300

Explanation / Answer

1) A)Viewed as retired:

**paid in capital in excess of par : 1540/220 =$ 7 per share

B)Viewed Treasury stock:

2)

Date Account Debit credit Feb 5 2018 common stock [9*1 par ] 9 paid in capital in excess of par   [9*7] 63 paid in capital -repurchase 1 Retained earning 17 cash [9*10] 90 july 92018 cash [4*12] 48 common stock [4*1] 4 paid in capital in excess of par 44 Nov 14 2020 cash [4*7] 28 common stock   [4*1] 4 paid in capital in excess of par 24

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