AFM291 Chapter Notes - Chapter 13: Treasury Stock, Retained Earnings, Issued Shares
28 Jun 2018
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The $19,000 debit and $2,000 credit to contributed surplus cannot be netted out because
they related to two different types of contributed surplus
o
Types of contributed surplus are below
o
To share capital first (common stock if no par value), in an amount equal to the par,
stated, or assigned value of the shares
o
Any excess, to contributed surplus (Type B) to the extent that contributed surplus was
created by a net excess of proceeds over cost on cancellation or resale of shares of the
same class (from past “gains”)
o
Any excess, to contributed surplus (Type C) in an amount equal to the pro rate (the
proportionate number of shares involved) share, other than those in type A, in the same
class of shares
o
Any excess, to retained earnings
o
When a company redeems its own shares, or cancels its own shares, the cost of doing so is
equal to or greater than their par, stated or assigned value (the amount generated from the
issuance of shares), the cost shall be allocated as follows:
-
See example below affects all types of contributed surplus
Continuing with Naples and Parksville
-
Next year 2,000 are repurchased at $30 = $60,000
o
Each company issues stock options (Type C contributed surplus) for $27,000, $3 per share,
9,000 shares outstanding
-
$60,000 cost needs to be allocated in steps
-
Common shares at $20 per share ($40,000) or $1 per share (2,000)
1.
Only for common shares issued with par value: $38,000 allocated to Type A contributed
surplus for amount available when issued (2,000 shares x $19 = 38,000)
2.
$2,000 allocated to Type B contributed surplus for the total amount available from the previous
repurchase in exhibit 13-8
3.
It makes logical sense that losses now should be offset against past gains
or
2
,
000
𝑠ℎ𝑎𝑟𝑒𝑠
𝑟𝑒𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑
9
,
000
𝑠ℎ𝑎𝑟𝑒𝑠
𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
×
$27
,
000
𝑜𝑓
𝑇𝑦𝑝𝑒
𝐶
𝑠𝑡𝑜𝑐𝑘
𝑜𝑝𝑡𝑖𝑜𝑛
𝑎𝑚𝑜𝑢𝑛𝑡
a.
2
,
000
𝑠ℎ𝑎𝑟𝑒𝑠
𝑟𝑒𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑
×
$3
𝑝𝑒𝑟
𝑠ℎ𝑎𝑟𝑒
𝑇𝑦𝑝𝑒
𝐶
𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑
𝑠𝑢𝑟𝑝𝑙𝑢𝑠
b.
Type C contributed surplus while there is a total of $27,000 available we use $6,000 because
that is the pro rata amount
4.
Remainder is debited to retained earnings
5.
When the repurchase price ($18) is less than the average share value ($20), the “gain” is
AFM 391 Page 7
Document Summary
The ,000 debit and ,000 credit to contributed surplus cannot be netted out because they related to two different types of contributed surplus. Types of contributed surplus are below o o o o o o o. To share capital first (common stock if no par value), in an amount equal to the par, stated, or assigned value of the shares. Any excess, to contributed surplus (type b) to the extent that contributed surplus was created by a net excess of proceeds over cost on cancellation or resale of shares of the same class (from past gains ) Any excess, to contributed surplus (type c) in an amount equal to the pro rate (the proportionate number of shares involved) share, other than those in type a, in the same class of shares. See example below affects all types of contributed surplus. Each company issues stock options (type c contributed surplus) for ,000, per share,
