Let's Talk About Treasury Stock
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Transcript of Let's Talk About Treasury Stock
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Let's Talk AboutTreasury Stock
an out of class less attempting to make-up for a snow day
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Topics Covered• Exercise (used as inspiration for other lessons)
• What kind of account is Treasury Stock?
• Adjectives to describe stock: authorized, issued, and outstanding
• Treasury Stock illustration from class (someday, I hope)
• Completion of the Exercise (selling TS for more, less, and a lot less)
(click a link to jump to that part of the presentation)
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Exercise(Similar to E13-7 from 8th edition)
On January 20 the stockholders' equity section of the balance sheet of N Corporation shows the following account balances: Common Stock ($5 par) $1,500,000; paid-in capital in excess of par $1,000,000; and Retained Earnings $1,200,000. During the year, the following transactions occurred:
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
Sept. 1 Sold 8,000 of shares acquired on March 1 for $14 per share.
Instructions:
(a) Journalize these transactions.
(b) Restate the entry for September 1, assuming the shares were sold for $12 per share.
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Exercise(Similar to E13-7 from 8th edition)On January 20 the stockholders' equity section of the balance sheet
of N Corporation shows the following account balances: Common Stock ($5 par) $1,500,000; paid-in capital in excess of par $1,000,000; and Retained Earnings $1,200,000. During the year, the following transactions occurred:
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
Sept. 1 Sold 8,000 of shares acquired on March 1 for $14 per share.
Instructions:
(a) Journalize these transactions.
(b) Restate the entry for September 1, assuming the shares were sold for $12 per share.
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Journalize the March 1 transaction.
May I have May I have a volunteer a volunteer
to make to make me this me this entry?entry?
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
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Journalize the March 1 transaction.
May I have May I have a volunteer a volunteer
to make to make me this me this entry?entry?
Treasury Stock 750,000
Cash 750,000
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
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Journalize the March 1 transaction.
Let make Let make parentheticparenthetical notations al notations about how about how we got the we got the numbers. numbers.
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
Give me a Give me a word / word / term / term /
phrase to phrase to describe describe this $15. this $15.
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
Purchase Purchase price. price.
That is the That is the amount of amount of cash we cash we spent. spent.
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
And what And what about THIS about THIS
$15?$15?
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
Par?Par?Purchase Purchase
price?price?Cost?Cost?
Some other Some other term?term?
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
Cost.Cost.But I But I
thought we thought we ALWAYS ALWAYS
kept up with kept up with stock at stock at
PAR?PAR?
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
What part of What part of ALWAYS do ALWAYS do
you not you not understand?understand?
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
The original The original issue of stock issue of stock is recorded at is recorded at
par. This is par. This is Treasury Treasury
Stock. Stock. ALWAYS ALWAYS
record TS at record TS at COST. COST.
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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Journalize the March 1 transaction.
Let's talk Let's talk about about
Treasury Treasury Stock. What Stock. What
kind of kind of account is account is Treasury Treasury Stock?Stock?
Treasury Stock (50,000 x $15) 750,000
Cash (50,000 x $15) 750,000
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What kind of account is Treasury Stock?
Which one Which one of you of you
would be would be willing to willing to
dialog with dialog with me a bit?me a bit?
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What kind of account is Treasury Stock?
Michael? Michael? Are you Are you willing?willing?
Sure!Sure!
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What kind of account is Treasury Stock?
So, Michael? So, Michael?
What kind What kind of an of an
account is account is Treasury Treasury Stock?Stock?
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What kind of account is Treasury Stock?
Is it an Is it an asset? asset?
Liability? Liability? Capital? Capital?
Revenue? Revenue? Or expense?Or expense?
CapitalCapital
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What kind of account is Treasury Stock?
Yes. Good. Yes. Good. And this And this chapter chapter we've we've
learned the learned the new name new name
for capital is for capital is ......
StockholdeStockholders' Equityrs' Equity
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What kind of account is Treasury Stock?
Correct. Correct. And how And how
many parts many parts of of
StockholderStockholders' Equity are s' Equity are
there?there?
Two. Two.
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What kind of account is Treasury Stock?
And what And what are their are their names?names?
"Paid-in" "Paid-in" and and
"Retaine"Retained"d"
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What kind of account is Treasury Stock?
Precisely!Precisely!And what is And what is the normal the normal balance of balance of capital / capital /
stockholders' stockholders' equity?equity?
Credit.Credit.
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What kind of account is Treasury Stock?
And what is And what is the normal the normal balance of balance of Treasury Treasury Stock?Stock?
? ? ?? ? ?
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What kind of account is Treasury Stock?
(thinks back (thinks back to earlier to earlier when we when we made the made the entry to entry to
record buying record buying the TS.)the TS.)
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Journalize the March 1 transaction.
Michael is Michael is thinking thinking back to back to
this entry.this entry.
Treasury Stock 750,000
Cash 750,000
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What kind of account is Treasury Stock?
Debit?Debit?
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What kind of account is Treasury Stock?
That's a That's a question.question.
Debit.Debit.
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What kind of account is Treasury Stock?
HhhhuuuuumHhhhuuuuumm.m.
So how shall So how shall we explain we explain
that?that?
Contra Contra CapitalCapital
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What kind of account is Treasury Stock?
Or using our Or using our new terms new terms we could we could
say ...say ...
Contra Contra StockholdeStockholders' Equityrs' Equity
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What kind of account is Treasury Stock?
Exactly! Exactly! Now is it Now is it
contra paid-contra paid-in or contra in or contra retained?retained?
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What kind of account is Treasury Stock?
Michael?Michael? Huh?Huh?
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What kind of account is Treasury Stock?
Is Treasury Is Treasury Stock contra Stock contra
paid-in or paid-in or contra contra
retained?retained?
Contra Contra Paid-inPaid-in
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What kind of account is Treasury Stock?
Jake?Jake?
Contra Contra RetainedRetained
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What kind of account is Treasury Stock?
Well, those Well, those are the two are the two
good good answers!answers!
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What kind of account is Treasury Stock?I'd love to I'd love to know what know what each one of each one of
you is you is thinking thinking
right now. right now. Really!Really!
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What kind of account is Treasury Stock?
Each of you Each of you should should
decide now: decide now: contra paid-contra paid-in? or contra in? or contra
retained?retained?
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What kind of account is Treasury Stock?
Paid-Paid-inin
Paid-Paid-ininPaid-inPaid-in
Paid-inPaid-in
Paid-inPaid-in
Paid-inPaid-in
RetaineRetainedd
RetaineRetainedd
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What kind of account is Treasury Stock?The answer The answer
is NEITHER!is NEITHER!It was a It was a
trick trick question!question!
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What kind of account is Treasury Stock?
Let's find out Let's find out why. Turn to why. Turn to
pg 578 in pg 578 in your your
textbook. textbook. Find the SE Find the SE
section in the section in the lower third of lower third of
the page. the page.
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What kind of account is Treasury Stock?
Find Find Treasury Treasury
Stock. Find Stock. Find total paid-total paid-in. Was TS in. Was TS deducted deducted from total from total paid-in?paid-in?
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What kind of account is Treasury Stock?NO!NO!
Then TS is Then TS is NOT contra NOT contra
paid-in. paid-in.
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What kind of account is Treasury Stock?
Find Find Treasury Treasury
Stock. Find Stock. Find Retained Retained Earnings. Earnings. Was TS Was TS
deducted deducted from RE?from RE?
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What kind of account is Treasury Stock?NO!NO!
Then TS is Then TS is NOT contra NOT contra retained. retained.
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What kind of account is Treasury Stock?TS is contra TS is contra
StockholderStockholders' Equity. s' Equity. And that's And that's all you can all you can
say about it. say about it.
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What kind of account is Treasury Stock?
Most conta Most conta accounts are accounts are
contra a contra a category and category and
contra to contra to something something
specific. Not so specific. Not so with TS.with TS.
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What kind of account is Treasury Stock?TS is contra TS is contra
StockholderStockholders' Equity. s' Equity.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
We sometimes describe number of shares for a corporation with three different adjectives:
Let's consider the meaning of each.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Think of as many Think of as many synonyms for synonyms for
authorized as you authorized as you can. can.
"Sorry but you "Sorry but you can't park there." can't park there."
Or high school Or high school principal catches principal catches
you in the hallway you in the hallway when you should be when you should be
in class. in class.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Allowed. Allowed. Permitted. Permitted. Permission. Permission. Did you think Did you think of some good of some good
ones too?ones too?My favorite is My favorite is "permission.""permission."
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
When the When the "incorporators" get an "incorporators" get an attorney to complete attorney to complete
the paperwork and dot the paperwork and dot all the i's and cross all all the i's and cross all the t's, they submit the the t's, they submit the completed forms to the completed forms to the
state requesting state requesting PERMISSION to do PERMISSION to do
business in that state. business in that state. Officials at the state Officials at the state
look over the look over the information and grant information and grant authorization for the authorization for the
new business. new business.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
AuthorizedAuthorized. .
PermissionPermission. .
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
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Permission
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Chapter 13 is Chapter 13 is all about all about
ISSUING stock. ISSUING stock. They give us They give us cash, we give cash, we give them stock. them stock. They give us They give us
land, buildings, land, buildings, we give them we give them
stock. stock.
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Permission
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Issued: given Issued: given out...out...
Placed in the Placed in the hands of the hands of the
stockholders. stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Placed in the hands of the stockholders.
Outstanding, Outstanding, eh? Just what eh? Just what makes stock makes stock
so so OUTSTANDINGOUTSTANDING? Printed on ? Printed on
better paper? better paper? Has that little Has that little
gold edge gold edge around it?around it?
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
Seriously, Seriously, what does what does make stock make stock
OUTSTANDINGOUTSTANDING? Some ? Some
incorrectly say incorrectly say the unissued the unissued shares. No. shares. No.
Sorry. Sorry.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
Remember Remember issued is "placed issued is "placed in the hands of in the hands of
the the stockholders." stockholders." Outstanding Outstanding
shares are those shares are those STILL in the STILL in the hands of the hands of the
shareholders. shareholders.
STILL in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
STILL in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
So literally So literally what is the what is the difference difference between between
ISSUED and ISSUED and OUTSTANDINGOUTSTANDING
??
STILL in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
Which Which mathematicamathematical operation l operation
(add, (add, subtract, subtract,
multiply, or multiply, or divide) is the divide) is the DIFFERENCE?DIFFERENCE?
STILL in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Placed in the hands of the stockholders.
Which Which mathematicamathematical operation l operation
(add, (add, subtract, subtract,
multiply, or multiply, or divide) is the divide) is the DIFFERENCE?DIFFERENCE?
STILL in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
PermissionPlaced in the hands of the stockholders.
Subtract, of Subtract, of course.course.
STILL in the hands of the stockholders.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
So So mathematicamathematica
lly the lly the difference difference between between
ISSUED and ISSUED and OUTSTANDINOUTSTANDIN
G must G must involve involve
subtraction.subtraction.
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Go ahead. Go ahead. Take a guess. Take a guess.
The The DIFFERENCE DIFFERENCE in issued and in issued and outstanding outstanding
is ...is ...
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Treasury Treasury StockStock
Treasury Stock
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Shares given Shares given out (issued) out (issued) less shares less shares reaquired reaquired
(treasury stock) (treasury stock) yields shares yields shares STILL in the STILL in the hands of the hands of the
shareholders. shareholders.
Treasury Stock
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Now consider Now consider which of which of
these these adjectives adjectives
best best describes describes
with "rights." with "rights." Authorized?Authorized?
Issued?Issued?Outstanding? Outstanding?
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Which shares Which shares can vote at a can vote at a stockholders stockholders
meeting? meeting? Which shares Which shares are entitled are entitled to receive a to receive a
cash cash dividend?dividend?
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Adjectives to Describe Stock
Authorized
Issued
Outstanding
Outstanding Outstanding shares have shares have
rights.rights.
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Adjectives to Describe Stock
We now We now return you to return you to the solution the solution
of the of the exercise exercise
already in already in progress.progress.
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Exercise(Similar to E13-7 from 8th edition)On January 20 the stockholders' equity section of the balance sheet
of N Corporation shows the following account balances: Common Stock ($5 par) $1,500,000; paid-in capital in excess of par $1,000,000; and Retained Earnings $1,200,000. During the year, the following transactions occurred:
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
Sept. 1 Sold 8,000 of shares acquired on March 1 for $14 per share.
Instructions:
(a) Journalize these transactions.
(b) Restate the entry for September 1, assuming the shares were sold for $12 per share.
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July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
May I have May I have a volunteer a volunteer
to make to make me this me this entry?entry?
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May I have a May I have a volunteer to volunteer to
make me make me this entry?this entry?
Cash 170,000 Treasury Stock 150,000 Paid-in Capital from TS 20,000
July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
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July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
In In parenthesis parenthesis show how show how
the amounts the amounts were were
determined. determined.
Cash (10,000 x $17) 170,000 Treasury Stock (10,000 x $15) 150,000
Paid-in Capital from TS 20,000
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July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share. Always keep Always keep
up with up with Treasury Treasury Stock at Stock at
COST. That COST. That means cost means cost
going IN, and going IN, and cost coming cost coming
OUT. OUT.
Cash (10,000 x $17) 170,000 Treasury Stock (10,000 x $15) 150,000
Paid-in Capital from TS 20,000
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July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
Is the Is the $20,000 $20,000
REVENUE?REVENUE?
Cash (10,000 x $17) 170,000 Treasury Stock (10,000 x $15) 150,000
Paid-in Capital from TS 20,000
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July 1 Sold 10,000 shares of shares acquired on March 1 for $17 per share.
NO! It is NO! It is paid-in paid-in capital capital
because it because it came from came from owners. owners.
Cash (10,000 x $17) 170,000 Treasury Stock (10,000 x $15) 150,000
Paid-in Capital from TS 20,000
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Sept. 1 Sold 8,000 of shares acquired on March 1 for $14 per share.
May I have May I have a volunteer a volunteer
to make to make me this me this entry?entry?
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May I have May I have a volunteer a volunteer
to make to make me this me this entry?entry?
Cash (8,000 x $14) 112,000Paid-in Capital from TS 8,000 Treasury Stock (8,000 x $15) 120,000
Sept. 1 Sold 8,000 of shares acquired on March 1 for $14 per share.
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(b) Restate the entry for September 1, assuming the shares were sold for $12 per share.
Cash (8,000 x $12) 96,000Paid-in Capital from TS 20,000Retained Earnings 4,000 Treasury Stock (8,000 x $15) 120,000
Who will Who will make this make this entry for entry for
me?me?
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FYINot that it matters, but thought I’d share with you this presentation (except for the last two slides) was done entirely on the iPad using Keynote. It was fun (though time consuming) to do it and learn the new software application at the same time.
Nothing substitutes for being together in class. However, I’ve tried to capture that as best I could under the circumstances.
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Final CommentThe intent of this lesson was to replicate what happened in class on Friday, the day after the snow day … or what would have happened on Thursday if class had met. It is challenging to convert class experiences to a presentation such as this. Thanks for getting to this point. I hope this lesson was beneficial to you.
Your comments are welcomed and appreciated.