Question

The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2020: Shareholders' Equity ($ in millions) Common stock, 210 million shares at $1 par $ 210 Paid-in capital—excess of par 1,260 Paid-in capital—share repurchase 1 Retained earnings 1,200 Required: 1. During 2021, 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, 2021, TNL Systems purchased 9 million shares at $10 per share. On July 9, 2021, the corporation sold 3 million shares at $12 per share. On November 14, 2023, the corporation sold 3 million shares at $7 per share. 2. Prepare the shareholders’ equity section of TNL Systems’ balance sheet at December 31, 2023, comparing the two approaches. Assume all net income earned in 2021–2023 was distributed to shareholders as cash dividends.

Answer 1

Answer:

TNL Systems Inc.

Journal Entries:

Retired shares:

February 5, 2021:

Debit Treasury stock $9

Debit Paid-in capital - excess of par $81

Credit Cash $90

To record the repurchase of shares.

Debit Common stock $9

Credit Treasury stock $9

To record the retirement of shares.

b) Viewed as treasury stock:

February 5, 2021:

Debit Treasury Stock $9

Debit Paid-in capital - excess of par $81

Credit Cash $90

To record the repurchase of 9 million shares at $10 each.

July 9, 2021:

Debit Cash $36

Credit Treasury Stock $3

Credit Paid-in capital - excess of par $33

To record the resale of 3 million treasury shares at $12 each.

November 14, 2023:

Debit Cash $21

Credit Treasury Stock $3

Credit Paid-in capital - excess of par $18

To record the resale of 3 million treasury shares at $7 each.

2a. Retired Shares

At December 31, 2020:

Shareholders' Equity ($ in millions)

Common stock, 210 million shares at $1 par $ 201

Paid-in capital—excess of par                           1,161

Paid-in capital—share repurchase                         1

Retained earnings                                           1,200

2b. Treasury stock:

At December 31, 2020:

Shareholders' Equity ($ in millions)

Common stock, 210 million shares at $1 par $ 210

Paid-in capital—excess of par                         1,230

Paid-in capital—share repurchase                        4

Retained earnings                                           1,200

Explanation:

a) Data and Calculations:

At December 31, 2020:

Shareholders' Equity ($ in millions)

Common stock, 210 million shares at $1 par $ 210

Paid-in capital—excess of par                         1,260

Paid-in capital—share repurchase                         1

Retained earnings                                           1,200

Transactions Analysis:

Retired shares:

February 5, 2021:

Common stock $9 Paid-in capital - excess of par $81 Cash $90

Treasury stock:

February 5, 2021:

Treasury Stock $9 Paid-in capital - excess of par $81 Cash $90

July 9, 2021:

Cash $36 Treasury Stock $3 Paid-in capital - excess of par $33

November 14, 2023:

Cash $ 21 Treasury Stock $3 Paid-in capital - excess of par $18

Treasury stock

Beginning balance     $1

February 5, 2021         9

July 9, 2021                (3)

November 14, 2023   (3)

Ending balance         $4

Paid-in capital - excess of par

Beginning balance    $1,260

February 5, 2021             (81)

July 9, 2021                      33

November 14, 2023         18

Ending balance        $1,230