ACCT 201 Lecture Notes - Lecture 13: Treasury Stock, Issued Shares, Income Tax
ACCT 201 – Lecture 13 – Chapter 8, 9, 10
Chapter 10 Continued
• Treasury Stock
o Buying back a company’s own stocks that were in circulation
o Why?
▪ Effects market price (supply and demand
▪ Use for stock dividends (instead of using cash)
▪ Earning (net income) per share goes up
• Net Income / number of shares outstanding
▪ Give to employees
o Entries
▪ Issue (1) $10 PAR for $12 (review)
▪ Buy that stock back for $11 (this is where it becomes treasury stock)
• Note: Treasury stock goes opposite, so it’s a contra-account with a
normal debit balance
▪ Reissue the stock for $15
• Since treasury stock was only debited $11 this whole time, it can
only be credited $11 when the company resells it. So since the
company sold it for $15, and the treasury stock was only worth
$11, they get an additional paid-in capital of $4
Cash
Common Stock
12
10
Additional Paid-in Capital
2
Treasury Stock
Cash
11
11
Cash
Treasury Stock
15
11
Additional Paid-in Capital
4
• Example
o Note: Common and preferred stock accounts = PAR of issued (PAR*Shares issued)
o How many preferred stock? 0 – there are no preferred stock as shown above
o How many common stock: 4,000,000: ((20,000*1,000)/5) – do 20,000 * 1,000
because the money is thousands, so the 20,000 is really 20,000,000. Divide by 5
because that is the PAR value of 1 common stock, so that will show you how many
common stock were purchased
o What is the Average price per share of common stock if the total paid-in capital is
120 million? $30: (120,000,000/4,000,000) – To find the average price per share of
common stock, you have to divide the total paid-in capital by how many common
stocks are sold
o Paid-in dividends at the end of the year (retained earnings at the beginning of the
year is $45 million and net income during the year was $9,907,500)? $1,907,500: To
find this, it may be easier to make a T-chart:
▪ With the three numbers we know (45,000,000; 9,907,500; and 53,000,000),
we can find the dividends. The Beginning balance and net income (which
credits the retained earnings since it is an income and not a loss) will total
54,907,500. Subtract 53,000,000 from this and that will equal dividends,
which is 1,907,500.
Retained Earnings
45,000,000
9,907,500
53,000,000
Beginning
Net Income (+)
1,907,500
Dividends
Question/Graph Taken From
“Financial Accounting”, Fourth
Edition, J. David Spiceland, Wayne
Thomas, Don Herrmann. (Page 499)
o How much treasury stock is there if they are purchased back at $20 each? 185,000:
((3,700*1,000)/20)
o Lastly, what is the dividends paid out per share? $0.50: (1,907,500 / (4,000,000 –
185,000)). Take the total dividends paid out as found earlier, and divide that by how
many shares of stock there are (treasury stock does not get paid dividends which is
why you subtract 185,000 from the 4,000,000)
Chapter 8 – Current Liabilities
• REMEMBER: Current = less than a year; Long-term = longer than a year
• Notes payable
o Get some cash ($) and have liability
▪ Example: $100 note @ 12% interest; life of loan is 3 months
▪ Recall the formula PRT (Principal*Rate*Time)
▪ Principle = $100; Rate = 12% (all rates are in terms of one year); Time = 3
Months
• November 1st – No interest yet, just the initial journal entry
• On December 31, the company will have 2 months of interest
having been built up and which they have to pay. Since they have
not yet paid the interest, they will have to debit interest expense
and credit interest payable since they have to pay it in the future.
To find the interest use: (2/12)*(.12)*100 = 2.
Cash
Notes Payable
100
100
November 1st
Interest Expense
Interest Payable
2
2
December 31
Document Summary
Acct 201 lecture 13 chapter 8, 9, 10. 2: buy that stock back for (this is where it becomes treasury stock) 11: note: treasur(cid:455) sto(cid:272)k goes opposite, so it"s a (cid:272)o(cid:374)tra-account with a normal debit balance, reissue the stock for . 4: since treasury stock was only debited this whole time, it can only be credited when the company resells it. So since the company sold it for , and the treasury stock was only worth. , they get an additional paid-in capital of : example. 0 there are no preferred stock as shown above: how many common stock: 4,000,000: ((20,000*1,000)/5) do 20,000 * 1,000 because the money is thousands, so the 20,000 is really 20,000,000. ,907,500: to find this, it may be easier to make a t-chart: 53,000,000: with the three numbers we know (45,000,000; 9,907,500; and 53,000,000), we can find the dividends.
