1. Treasury stock refers to a corporation's own stock that it has reacquired from shareholders but not retired. Corporations purchase treasury stock for reasons such as reissuing shares to employees or enhancing stock market value.
2. Treasury stock is recorded by debiting the treasury stock account for the purchase price and crediting cash. Treasury stock is a contra equity account that reduces stockholders' equity.
3. Preferred stock has features like preference in dividends and liquidation. It is accounted for similarly to common stock, with the par value amount recorded in the preferred stock account and any excess paid in recorded in additional paid-in capital.
1. Treasury stock refers to a corporation's own stock that it has reacquired from shareholders but not retired. Corporations purchase treasury stock for reasons such as reissuing shares to employees or enhancing stock market value.
2. Treasury stock is recorded by debiting the treasury stock account for the purchase price and crediting cash. Treasury stock is a contra equity account that reduces stockholders' equity.
3. Preferred stock has features like preference in dividends and liquidation. It is accounted for similarly to common stock, with the par value amount recorded in the preferred stock account and any excess paid in recorded in additional paid-in capital.
1. Treasury stock refers to a corporation's own stock that it has reacquired from shareholders but not retired. Corporations purchase treasury stock for reasons such as reissuing shares to employees or enhancing stock market value.
2. Treasury stock is recorded by debiting the treasury stock account for the purchase price and crediting cash. Treasury stock is a contra equity account that reduces stockholders' equity.
3. Preferred stock has features like preference in dividends and liquidation. It is accounted for similarly to common stock, with the par value amount recorded in the preferred stock account and any excess paid in recorded in additional paid-in capital.
1. Treasury stock refers to a corporation's own stock that it has reacquired from shareholders but not retired. Corporations purchase treasury stock for reasons such as reissuing shares to employees or enhancing stock market value.
2. Treasury stock is recorded by debiting the treasury stock account for the purchase price and crediting cash. Treasury stock is a contra equity account that reduces stockholders' equity.
3. Preferred stock has features like preference in dividends and liquidation. It is accounted for similarly to common stock, with the par value amount recorded in the preferred stock account and any excess paid in recorded in additional paid-in capital.
Treasury stock: - corporation’s own stock that it has reacquired from shareholders, but notretired.
-Corporations purchase their outstanding stock:
1. To reissue the shares to officers and employees under bonus and stock compensation plans.
2. To enhance the stock’s market value.
3. To have additional shares available for use in the acquisition of other companies.
4. To increase earnings per share.
5. To rid the company of disgruntled investors, perhaps to avoid a takeover.
Purchase of Treasury Stock:
Debit Treasury Stock for the price paid to reacquire the shares. Treasury stock is a contra stockholders’ equity account, not an asset. Purchase of treasury stock reduces stockholders’ equity.
Example:
On February 1, 2008, Mead acquires 4,000 shares of its stock at $8
per share.
Treasury stock (4,000 x $8) 32,000
Cash 32,000
Sale of Treasury Stock:
Above Cost Below Cost
Mr. Amir Rabie 1
INTERMIDIATE ACCOUNTING CHAPTER 3
Accounting for treasury stock (Above Cost):
Example: On February 1, 2008, Mead acquires 4,000 shares of its stock at $8
per share. Record the journal entry for the following transaction:
On July 1, Mead sells for $10 per share 1,000 shares of its treasury stock, previously acquired at $8 per share.
July 1 Cash 10,000
Treasury stock 8,000
Paid-in capital from treasury stock 2,000
Accounting for treasury stock (Below Cost):
Example: On February 1, 2008, Mead acquires 4,000 shares of its stock at $8
per share. Record the journal entry for the following transaction:
On Oct. 1, Mead sells an additional 800 shares of treasury stock at $7 per share
Oct. 1 Cash 5,600
Paid-in capital from treasury stock 800
Treasury stock 6,400
Mead uses Paid-in Capital from Treasury Stock, if available, for the difference between cost and resale price of the shares.
Mr. Amir Rabie 2
INTERMIDIATE ACCOUNTING CHAPTER 3
Example: On February 1, 2008, Mead acquires 4,000 shares of its stock at $8 per share. Record the journal entry for the following transaction: On Dec. 1, assume that Mead, Inc. sells its remaining 2,200 shares at $7 per share.
Dec. 1 Cash 15,400
Paid-in capital from treasury stock 1,200
(Limited to balance on hand)
Retained earnings 1,000
Treasury stock 17,600
Preferred stock: -Features often associated with preferred stock.
1. Preference as to dividends.
2.Preference as to assets in liquidation.
3.Nonvoting.
Accounting for preferred stock at issuance is similar to that for
common stock.
Example: Stine Corporation issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Journalize the issuance of the preferred stock.
Cash 120,000
Preferred stock (10,000 x $10) 100,000
Paid-in capital in excess of par – Preferred stock 20,000
Preferred stock may have a par value or no-par value.
Mr. Amir Rabie 3
INTERMIDIATE ACCOUNTING CHAPTER 3
Dividend Preferences:
Right to receive dividends before common stockholders.
Per share dividend amount is stated as a percentage of the preferred stock’s par value or as a specified amount. Cumulative dividend–holders of preferred stock must be paid their annual dividend plus any dividends in arrears before common stockholders receive dividends. Statement presentation:
Stockholders’ Equity consists of:
(1) Paid –in capital
(2) Retained earning
Paid –in capital consists of:
(1) Capital stock: which consists of preferred and common stocks.
(2) Additional paid –in capital: which includes: the excess of amounts paid in overpar or stated value and paid –in capital from treasury stock.
Note:
Paid-in capital: is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.
Retained earnings: is net income that a corporation remains for future use.
Mr. Amir Rabie 4
INTERMIDIATE ACCOUNTING CHAPTER 3 A- True or False Questions:
1. Treasury stock is a contra stockholders' equity account.
2. Under the cost method, Treasury Stock is debited at the price paid to reacquire the shares, and the same amount is credited to Treasury Stockwhen the shares are sold. 3. Preferred stock has contractual preference over common stock in certainareas. 4. Preferred stockholders generally do not have the right to vote for theboard of directors. 5. Dividends may be declared and paid in cash or stock. 6. Cash dividends are not a liability of the corporation until they are declaredby the board of directors. 7. Dividends in arrears on cumulative preferred stock are considered aliability. B- Multiple Choices Questions:
1. Treasury stock is generally accounted for by the ……
A. cost method. B. market value method. C. par value method. D. stated value method.
2. Four thousand shares of treasury stock of Meyer, Inc., previously acquired at $12 per share, are sold at $18 per share. The entry to recordthis transaction will include a:
A. credit to Treasury Stock for $72,000.
B. debit to Paid-In Capital from Treasury Stock for $24,000. C. debit to Treasury Stock for $48,000. D. credit to Paid-In Capital from Treasury Stock for $24,000.
3. Foley Manufacturing Corporation purchased 3,000 shares of its own previously issued $10 par common stock for $69,000. As a result of thisevent:
A. Foley’s Common Stock account decreased $30,000.
B. Foley’s total stockholders’ equity decreased $69,000. C. Foley’s Paid-in Capital in Excess of Par Value account decreased $39,000. D. All of the above. 4. Which of the following is not a right or preference associated withpreferred stock? A. The right to vote. B. First claim to dividends. C. Preference to corporate assets in case of liquidation. D. To receive dividends in arrears before common stockholders receivedividends.
Mr. Amir Rabie 5
INTERMIDIATE ACCOUNTING CHAPTER 3 Cole Corporation issues 15,000 shares of $50 par value preferred stock forcash at $60 per share.
5. The entry to record the transaction will consist of a debit to Cash for 900,000 and a credit or credits to:
a. Preferred Stock for $900,000.
b. credit to Treasury Stock for $72,000. c. debit to Paid-In Capital from Treasury Stock for $24,000. d. debit to Treasury Stock for $48,000. e. credit to Paid-In Capital from Treasury Stock for $24,000.
6. In the stockholders' equity section, the effects of the transaction abovewill be reported:
A. entirely within the capital stock section.
B. entirely within the additional paid-in capital section. C. under both the capital stock and additional paid-in capital sections. D. entirely under the retained earnings section.
7. The trial balance of Hackman Inc. includes the following balances: CommonStock, $39,000; Paid-in Capital in Excess of Par, $96,000; Treasury Stock, $9,000; Preferred Stock, $30,000. Capital stock totals:
a. $69,000. b. $126,000. c. $165,000. d. $174,000.
8. Each of the following is reported for common stock except the:
A. par value. B. shares issued. C. shares outstanding. D. liquidation value.
9. Additional paid-in capital includes all of the following except:
A. paid-in capital from treasury stock.
B. paid-in capital in excess of par. C. paid-in capital in excess of stated value. D. paid-in capital in excess of book value.
Mr. Amir Rabie 6
INTERMIDIATE ACCOUNTING CHAPTER 3
10. In the stockholders' equity section of the balance sheet:
A. Common Stock Dividends Distributable will be classified as part ofadditional
paid-in capital. B. Common Stock Dividends Distributable will appear in its own subsection ofthe stock- holders' equity. C. Additional Paid-in Capital appears under the subsection Paid-in Capital. D. Dividends in arrears will appear as a restriction of Retained Earnings.
