let's talk about treasury stock

Let's Talk AboutTreasury Stock

an out of class less attempting to make-up for a snow day

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)

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.

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:




Instructions:



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



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


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


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


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


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


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


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


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


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

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?


Michael? Michael? Are you Are you willing?willing?

Sure!Sure!


So, Michael? So, Michael?

What kind What kind of an of an

account is account is Treasury Treasury Stock?Stock?


Is it an Is it an asset? asset?

Liability? Liability? Capital? Capital?

Revenue? Revenue? Or expense?Or expense?

CapitalCapital


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


Correct. Correct. And how And how

many parts many parts of of

StockholderStockholders' Equity are s' Equity are

there?there?

Two. Two.


And what And what are their are their names?names?

"Paid-in" "Paid-in" and and

"Retaine"Retained"d"


Precisely!Precisely!And what is And what is the normal the normal balance of balance of capital / capital /

stockholders' stockholders' equity?equity?

Credit.Credit.


And what is And what is the normal the normal balance of balance of Treasury Treasury Stock?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.)


Michael is Michael is thinking thinking back to back to

this entry.this entry.

Treasury Stock 750,000

Cash 750,000


Debit?Debit?


That's a That's a question.question.

Debit.Debit.


HhhhuuuuumHhhhuuuuumm.m.

So how shall So how shall we explain we explain

that?that?

Contra Contra CapitalCapital


Or using our Or using our new terms new terms we could we could

say ...say ...

Contra Contra StockholdeStockholders' Equityrs' Equity


Exactly! Exactly! Now is it Now is it

contra paid-contra paid-in or contra in or contra retained?retained?


Michael?Michael? Huh?Huh?


Is Treasury Is Treasury Stock contra Stock contra

paid-in or paid-in or contra contra

retained?retained?

Contra Contra Paid-inPaid-in


Jake?Jake?

Contra Contra RetainedRetained


Well, those Well, those are the two are the two

good good answers!answers!

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!


Each of you Each of you should should

decide now: decide now: contra paid-contra paid-in? or contra in? or contra

retained?retained?


Paid-Paid-inin

Paid-Paid-ininPaid-inPaid-in

Paid-inPaid-in

Paid-inPaid-in

Paid-inPaid-in

RetaineRetainedd

RetaineRetainedd

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!


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.


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?

What kind of account is Treasury Stock?NO!NO!

Then TS is Then TS is NOT contra NOT contra

paid-in. paid-in.


Find Find Treasury Treasury

Stock. Find Stock. Find Retained Retained Earnings. Earnings. Was TS Was TS

deducted deducted from RE?from RE?

What kind of account is Treasury Stock?NO!NO!

Then TS is Then TS is NOT contra NOT contra retained. retained.

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.


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.

What kind of account is Treasury Stock?TS is contra TS is contra

StockholderStockholders' Equity. s' Equity.

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.


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.


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."


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.


Authorized

Issued

Outstanding

AuthorizedAuthorized. .

PermissionPermission. .


Authorized

Issued

Outstanding

Permission

Permission


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.

Permission


Authorized

Issued

Outstanding

Permission

Issued: given Issued: given out...out...

Placed in the Placed in the hands of the hands of the

stockholders. stockholders.


Authorized

Issued

Outstanding

Permission

Placed in the hands of the stockholders.


Authorized

Issued

Outstanding


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?


Authorized

Issued

Outstanding

Permission


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.


Authorized

Issued

Outstanding

Permission


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.


Authorized

Issued

Outstanding

Permission




Authorized

Issued

Outstanding

Permission


So literally So literally what is the what is the difference difference between between

ISSUED and ISSUED and OUTSTANDINGOUTSTANDING

??



Authorized

Issued

Outstanding

Permission


Which Which mathematicamathematical operation l operation

(add, (add, subtract, subtract,

multiply, or multiply, or divide) is the divide) is the DIFFERENCE?DIFFERENCE?



Authorized

Issued

Outstanding

PermissionPlaced in the hands of the stockholders.

Subtract, of Subtract, of course.course.



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.


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 ...


Authorized

Issued

Outstanding

Treasury Treasury StockStock

Treasury 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


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?


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?


Authorized

Issued

Outstanding

Outstanding Outstanding shares have shares have

rights.rights.


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.

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:




Instructions:



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



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

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.




Is the Is the $20,000 $20,000

REVENUE?REVENUE?




NO! It is NO! It is paid-in paid-in capital capital

because it because it came from came from owners. owners.





Cash (8,000 x $14) 112,000Paid-in Capital from TS 8,000 Treasury Stock (8,000 x $15) 120,000



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?

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.

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.

let's talk about treasury stock

Documents

shares of shares

shares of n corporation

common stock

treasury stock750

original issue of stock

balance sheet of n corporation

excess of par

following transactions