Question

As of the end of Year 1, the shareholders’ equity of Philip Corporation consisted of: Common stock, 80,100 shares at $1 par $ 80,100 Paid-in capital—excess of par 168,210 Retained earnings 121,000 At the beginning of Year 2, the company repurchased and retired 1,100 shares at $8.10 per share. Prepare the appropriate journal entry for the repurchase and retirement of the shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Treasury Stock  8,910 debit

Cash                                     8,910 credit

For the purchase of treasury Stock

Common Stock               1,100 debit

Paid-in Capital__excess of par 7,810 debit

 Treasury Stock                              8,910 credit

For the retirement of the stocks

Explanation:

First the company will recognize the treasury Stock.

1,100 shares at 8.10 = 8,910

Then it will write-off the treasury stock against common stock and Paid-in Capital__excess of par

common stock will decrease by their face value

1,100 shares x 1 = 1,100

The diference will be taked from Pai-in Capital -- excess of par

8,910 - 1,100 = 7,810

Answer 2

Answer:

There are two journal entries to record the repurchase and retirement of the shares:

* To record the share repurchased:

Dr Treasury stock                8,910

Cr Cash                                8,910

* To record the retirement of share repurchased:

Dr Common stock                                       1,100

Dr Paid-in capital common stock               2,310

Dr Retained Earning                                    5,500

Cr Treasury stock                                       8,910

Explanation:

Working note:

* To record the share repurchased:

The Treasury stock account is debited at the amount equals to the cash paid for stock repurchased, thus, offsetting entry is credit Cash account = Number of share repurchased * Price purchase = 1,100 * 8.1 = $8,910

*  To record the retirement of share repurchased:

Common stock account is debited at the amount = Par value * Share retired = 1 * 1,100 = $1,100

As one common stock is carried $2.1 value excess of par ( which is calculated as 168,210 / 80,100); paid-in capital account is debited by $2,310 ( 1,100 * 2.1)

Retained earning is debited by the amount calculated as: Number of share retired * ( Price at retired - Par value - Excess of par value) = 1,100 * ( 8.1 -1-2.1) = $5,500

Treasury account is debited $8,910 to bring the balance of this account to zero as stocks repurchased are fully retired.