Retirement of common stock journal entry
Retiring: If the company retires treasury stock, the journal entry is to debit the paid-in capital account that relates to the retired treasury stock and credit treasury stock. Per generally accepted accounting principles, recording any sort of gain or loss on treasury stock transactions isn’t appropriate. Some preferred stock issues may carry a provision entitling the shares for conversion to common stock. They are called convertible preferred stock. Journal entry for conversion of preferred stock. If Company A instead converts the 100,000 preferred shares to $10-par common stock on 2-for-1 basis, the transaction shall be recorded as follows: Purchase of treasury stock – cost method: Journal entry: Under cost method, the treasury stock account is debited and cash account is credited with the amount paid for acquiring the shares of treasury stock (i.e., the cost of treasury stock). The par value of shares is ignored for recording the purchase of treasury stock under cost method. It is slightly more complex than cost method but when it comes to retirement of treasury stock the journal entries are fairly simple. Note : Under par value method we start with the assumption of retiring such shares, therefore, when the treasury shares are actually retired, the treatment is fairly simple. See the answer. As of the end of Year 1, the shareholders’ equity of Philip Corporation consisted of: 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. One-ninth of the shares of common stock are retired, so one-ninth of APIC can be debited for $300,000. An additional debit to RE is required for $500,000 ($1,800,000 - $1,000,000 - $300,000). Therefore, the balances of APIC and RE after retirement of 100,000 shares are $2,400,000 ($2,700,000 - $300,000) and $800,000
15 Oct 2012 Our common stock has no stated (or par) value, therefore the entire of accounting by allocating the cost of shares repurchased and retired
Treasury stock is the term that used to describe shares of a company's own stock that it has reacquired. A company may buy back stock for many reasons. Under cost method, the journal entry for the retirement of treasury stock is made by debiting the common stock with par value of shares being retired, debiting additional paid-in capital (if any) associated with the shares being retired and crediting treasury stock with the cost of shares being retired. The journal entry to record the acquisition and retirement includes debits to the Capital Stock account for the stock’s par value (or its equivalent) and the Capital in Excess of Par account (or its equivalent) for the amount of claims created in excess of the par value. A credit is recorded to Cash account for the amount paid. Constructive Retirement Method. An alternative method of accounting for treasury stock is the constructive retirement method, which is used under the assumption that repurchased stock will not be reissued in the future. Under this approach, you are essentially reversing the amount of the original price at which the stock was sold.
Derived from the basic accounting equation Assets Retire treasury stock and run out of APIC- as Other classes of common stock may differ in voting rights.
Prepare the journal entry to record the transaction. Treasury Stock line and record the $500,000 as a debit to reduce the common stock value overstatement.
The FASB Accounting Standards Codification® material is copyrighted by the 7.3.2 Common Stock Issued to Fund Certain Retirement Benefit Payments. 430.
Keep in mind your journal entry must always balance (total debits must equal total credits). What happens if we don’t have a par value? Watch this video to demonstrate par and no-par value transactions. Notice how the accounting is the same for common and preferred stock. After the video, we will look at some more examples. The preferred stock journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of preferred stock transactions. In each case the term deposit journal entries show the debit and credit account together with a brief narrative. Retiring: If the company retires treasury stock, the journal entry is to debit the paid-in capital account that relates to the retired treasury stock and credit treasury stock. Per generally accepted accounting principles, recording any sort of gain or loss on treasury stock transactions isn’t appropriate. Stock issued in exchange for non-cash assets or services. The repurchase of stock. We will address the accounting for each of these stock transactions below. The Sale of Stock for Cash. The structure of a journal entry for the cash sale of stock depends upon the existence and size of any par value. Paid-In Capital – Treasury Stock ($30 balance remaining) 30: Retained earnings (to balance entry $2,750 cost – $2,650 cash – $30 paid in capital balance) 70 Treasury stock – Common (50 shares x $55 cost) 2,750 Reissued 50 shares of treasury stock at $53; cost is $55 per share. The first step in constructing this journal entry is to compare the cost to retire the shares ($62,500) with the average initial issuance price to date ($50,000). The specific issue price of these shares ($4) is irrelevant. The corporation paid $12,500 more to retire these shares than the average original proceeds. Retiring: If the company retires treasury stock, the journal entry is to debit the paid-in capital account that relates to the retired treasury stock and credit treasury stock. Per generally accepted accounting principles, recording any sort of gain or loss on treasury stock transactions isn’t appropriate.
A treasury stock or reacquired stock is stock which is bought Another common way for accounting for treasury stock is the the books will reflect the action as a retirement of the shares.
Keep in mind your journal entry must always balance (total debits must equal total credits). What happens if we don’t have a par value? Watch this video to demonstrate par and no-par value transactions. Notice how the accounting is the same for common and preferred stock. After the video, we will look at some more examples. The preferred stock journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of preferred stock transactions. In each case the term deposit journal entries show the debit and credit account together with a brief narrative. Retiring: If the company retires treasury stock, the journal entry is to debit the paid-in capital account that relates to the retired treasury stock and credit treasury stock. Per generally accepted accounting principles, recording any sort of gain or loss on treasury stock transactions isn’t appropriate. Stock issued in exchange for non-cash assets or services. The repurchase of stock. We will address the accounting for each of these stock transactions below. The Sale of Stock for Cash. The structure of a journal entry for the cash sale of stock depends upon the existence and size of any par value. Paid-In Capital – Treasury Stock ($30 balance remaining) 30: Retained earnings (to balance entry $2,750 cost – $2,650 cash – $30 paid in capital balance) 70 Treasury stock – Common (50 shares x $55 cost) 2,750 Reissued 50 shares of treasury stock at $53; cost is $55 per share.
Paid-In Capital – Treasury Stock ($30 balance remaining) 30: Retained earnings (to balance entry $2,750 cost – $2,650 cash – $30 paid in capital balance) 70 Treasury stock – Common (50 shares x $55 cost) 2,750 Reissued 50 shares of treasury stock at $53; cost is $55 per share. The first step in constructing this journal entry is to compare the cost to retire the shares ($62,500) with the average initial issuance price to date ($50,000). The specific issue price of these shares ($4) is irrelevant. The corporation paid $12,500 more to retire these shares than the average original proceeds. Retiring: If the company retires treasury stock, the journal entry is to debit the paid-in capital account that relates to the retired treasury stock and credit treasury stock. Per generally accepted accounting principles, recording any sort of gain or loss on treasury stock transactions isn’t appropriate. Some preferred stock issues may carry a provision entitling the shares for conversion to common stock. They are called convertible preferred stock. Journal entry for conversion of preferred stock. If Company A instead converts the 100,000 preferred shares to $10-par common stock on 2-for-1 basis, the transaction shall be recorded as follows: Purchase of treasury stock – cost method: Journal entry: Under cost method, the treasury stock account is debited and cash account is credited with the amount paid for acquiring the shares of treasury stock (i.e., the cost of treasury stock). The par value of shares is ignored for recording the purchase of treasury stock under cost method. It is slightly more complex than cost method but when it comes to retirement of treasury stock the journal entries are fairly simple. Note : Under par value method we start with the assumption of retiring such shares, therefore, when the treasury shares are actually retired, the treatment is fairly simple.