Let's Talk About
Treasury Stock
an out of class less attempting to make-up for a snow day
Topics Covered
(click a link to jump to that part of the presentation)
• 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)
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:
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.
Journalize the March 1 transaction.
May I have a
volunteer to
make me this
entry?
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
Journalize the March 1 transaction.
May I have a
volunteer to
make me this
entry?
Mar. 1 Purchased 50,000 shares of N Corporation shares for $15 per share.
Treasury Stock
Cash
750,000
750,000
Journalize the March 1 transaction.
Let make
parenthetical
notations
about how we
got the
numbers.
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
Give me a
word / term /
phrase to
describe this
$15.
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
Purchase
price.
That is the
amount of
cash we spent.
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
And what
about THIS
$15?
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
Par?
Purchase
price?
Cost?
Some other
term?
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
Cost.
But I thought
we ALWAYS
kept up with
stock at PAR?
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
What part of
ALWAYS do
you not
understand?
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
The original
issue of stock is
recorded at par.
This is Treasury
Stock. ALWAYS
record TS at
COST.
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
Journalize the March 1 transaction.
Let's talk about
Treasury
Stock. What
kind of account
is Treasury
Stock?
Treasury Stock (50,000 x $15)
Cash (50,000 x $15)
750,000
750,000
What kind of account is Treasury Stock?
Which one of
you would be
willing to
dialog with me
a bit?
What kind of account is Treasury Stock?
Michael?
Are you
willing?
Sure!
What kind of account is Treasury Stock?
So, Michael?
What kind of
an account is
Treasury
Stock?
What kind of account is Treasury Stock?
Is it an asset?
Liability?
Capital?
Revenue? Or
expense?
Capital
What kind of account is Treasury Stock?
Yes. Good.
And this
chapter we've
learned the
new name for
capital is ...
Stockholders'
Equity
What kind of account is Treasury Stock?
Correct. And
how many
parts of
Stockholders'
Equity are
there?
Two.
What kind of account is Treasury Stock?
And what are
their names?
"Paid-in"
and
"Retained"
What kind of account is Treasury Stock?
Precisely!
And what is the
normal balance
of capital /
stockholders'
equity?
Credit.
What kind of account is Treasury Stock?
And what is
the normal
balance of
Treasury
Stock?
???
What kind of account is Treasury Stock?
(thinks back to
earlier when we
made the entry
to record
buying the TS.)
Journalize the March 1 transaction.
Michael is
thinking back
to this entry.
Treasury Stock
Cash
750,000
750,000
What kind of account is Treasury Stock?
Debit?
What kind of account is Treasury Stock?
That's a
question.
Debit.
What kind of account is Treasury Stock?
Hhhhuuuuumm.
So how shall we
explain that?
Contra
Capital
What kind of account is Treasury Stock?
Or using our
new terms we
could say ...
Contra
Stockholders'
Equity
What kind of account is Treasury Stock?
Exactly!
Now is it
contra paid-in
or contra
retained?
What kind of account is Treasury Stock?
Michael?
Huh?
What kind of account is Treasury Stock?
Is Treasury
Stock contra
paid-in or
contra
retained?
Contra
Paid-in
What kind of account is Treasury Stock?
Jake?
Contra
Retained
What kind of account is Treasury Stock?
Well, those are
the two good
answers!
What kind of account is Treasury Stock?
I'd love to
know what
each one of
you is thinking
right now.
Really!
What kind of account is Treasury Stock?
Each of you
should decide
now: contra
paid-in? or
contra
retained?
What kind of account is Treasury Stock?
Paid-in
Retained
Paid-in
Paid-in
Retained
Paid-in
Paid-in
Paid-in
What kind of account is Treasury Stock?
The answer is
NEITHER!
It was a trick
question!
Let's find out
why. Turn to pg
578 in your
textbook. Find
the SE section
in the lower
third of the
page.
What kind of account is Treasury Stock?
Find Treasury
What kind
of
account
is
Treasury
Stock?
Stock. Find
total paid-in.
Was TS
deducted from
total paid-in?
What kind of
account
is
Treasury
Stock?
NO!
Then TS is
NOT contra
paid-in.
Find Treasury
What kind
of
account
is
Treasury
Stock?
Stock. Find
Retained
Earnings. Was
TS deducted
from RE?
What kind of
account
is
Treasury
Stock?
NO!
Then TS is
NOT contra
retained.
TS is contra
What kind
of
account
is
Treasury
Stock?
Stockholders'
Equity. And
that's all you
can say about
it.
Most conta
accounts are
contra a category
and contra to
something
specific. Not so
with TS.
What kind of account is Treasury Stock?
What kind of account is Treasury Stock?
TS is contra
Stockholders'
Equity.
Adjectives to Describe Stock
We sometimes describe number of shares for a
corporation with three different adjectives:
Authorized
Issued
Outstanding
Let's consider the meaning of each.
Adjectives to Describe Stock
Think of as many
synonyms for
authorized as you can.
"Sorry but you can't
park there." Or high
school principal
catches you in the
hallway when you
should be in class.
Authorized
Issued
Outstanding
Adjectives to Describe Stock
Authorized
Allowed.
Permitted.
Permission.
Did you think of
some good ones
too?
My favorite is
"permission."
Issued
Outstanding
Adjectives to Describe Stock
When the "incorporators"
get an attorney to complete
the paperwork and dot all
the i's and cross all the t's,
they submit the completed
forms to the state
requesting PERMISSION to
do business in that state.
Officials at the state look
over the information and
grant authorization for the
new business.
Authorized
Issued
Outstanding
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Authorized.
Permission.
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Permission
Adjectives to Describe Stock
Authorized
Issued
Chapter 13 is all
about ISSUING
stock. They give
us cash, we give
them stock. They
give us land,
Permissio
Permission
buildings, we give
n
them stock.
Outstanding
Adjectives to Describe Stock
Authorized
Issued
Issued: given
out...
Placed in the
hands of the
stockholders.
Permissio
Permission
n
Outstanding
Adjectives to Describe Stock
Authorized
Issued
Permission
Placed in the hands of the
stockholders.
Outstanding
Adjectives to Describe Stock
Authorized
Issued
Outstanding, eh?
Just what makes
stock so
OUTSTANDING?
Printed on better
paper? Has that
little gold edge
around it?
Placed in the hands of the
stockholders.
Outstanding
Adjectives to Describe Stock
Authorized
Issued
Seriously, what
does make stock
OUTSTANDING?
Permission
Some incorrectly
say the unissued
shares. No.
Sorry.
Placed in the hands of the
stockholders.
Outstanding
Adjectives to Describe Stock
Remember issued
is "placed in the
hands of the
Permission
stockholders."
Outstanding shares
are those STILL in
the hands of the
shareholders.
Authorized
Issued
Placed in the hands of the
stockholders.
Outstanding
STILL in the hands of the
stockholders.
Adjectives to Describe Stock
Authorized
Issued
Permission
Placed in the hands of the
stockholders.
Outstanding
STILL in the hands of the
stockholders.
Adjectives to Describe Stock
Authorized
Issued
So literally what
is Permission
the difference
between ISSUED
and
OUTSTANDING?
Placed in the hands of the
stockholders.
Outstanding
STILL in the hands of the
stockholders.
Adjectives to Describe Stock
Authorized
Issued
Which
mathematical
Permission
operation
(add,
subtract,
multiply, or
divide) is the
DIFFERENCE?
Placed in the hands of the
stockholders.
Outstanding
STILL in the hands of the
stockholders.
Adjectives to Describe Stock
Authorized
Issued
Which
mathematical
operation (add,
Permission
subtract,
multiply, or
divide) is the
DIFFERENCE?
Placed in the hands of the
stockholders.
Outstanding
STILL in the hands of the
stockholders.
Adjectives to Describe Stock
Authorized
Issued
Subtract, of
course.
Permission
Placed in the hands of the
stockholders.
Outstanding
STILL in the hands of the
stockholders.
Adjectives to Describe Stock
Authorized
So
mathematically
the difference
between
ISSUED and
Permission
OUTSTANDING
must involve
subtraction.
Issued
Outstanding
Adjectives to Describe Stock
Authorized
Go ahead. Take
a guess. The
DIFFERENCE in
issued and
outstanding is ...
Issued
Outstanding
Adjectives to Describe Stock
Authorized
Treasury Stock
Issued
Treasury Stock
Outstanding
Adjectives to Describe Stock
Authorized
Shares given out
(issued) less
shares reaquired
(treasury stock)
yields shares
STILL in the hands
of the
shareholders.
Issued
Treasury Stock
Outstanding
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Now consider
which of these
adjectives best
describes with
"rights."
Authorized?
Issued?
Outstanding?
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Which shares
can vote at a
stockholders
meeting?
Which shares
are entitled to
receive a cash
dividend?
Adjectives to Describe Stock
Authorized
Issued
Outstanding
Outstanding
shares have
rights.
Adjectives to Describe Stock
We now return
you to the
solution of the
exercise already
in 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:
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.
July 1 Sold 10,000 shares of shares
acquired on March 1 for $17 per share.
May I have a
volunteer to
make me this
entry?
July 1 Sold 10,000 shares of shares
acquired on March 1 for $17 per share.
May I have a
volunteer to
make me this
entry?
Cash
Treasury Stock
Paid-in Capital from TS
170,000
150,000
20,000
July 1 Sold 10,000 shares of shares acquired
on March 1 for $17 per share.
In parenthesis
show how the
amounts were
determined.
Cash (10,000 x $17)
Treasury Stock (10,000 x $15)
Paid-in Capital from TS
170,000
150,000
20,000
July 1 Sold 10,000 shares of shares acquired
on March 1 for $17 per share.
Always keep up
with Treasury
Stock at COST.
That means cost
going IN, and
cost coming
OUT.
Cash (10,000 x $17)
Treasury Stock (10,000 x $15)
Paid-in Capital from TS
170,000
150,000
20,000
July 1 Sold 10,000 shares of shares acquired
on March 1 for $17 per share.
Is the $20,000
REVENUE?
Cash (10,000 x $17)
Treasury Stock (10,000 x $15)
Paid-in Capital from TS
170,000
150,000
20,000
July 1 Sold 10,000 shares of shares acquired
on March 1 for $17 per share.
NO! It is paidin capital
because it
came from
owners.
Cash (10,000 x $17)
Treasury Stock (10,000 x $15)
Paid-in Capital from TS
170,000
150,000
20,000
Sept. 1 Sold 8,000 of shares acquired on
March 1 for $14 per share.
May I have a
volunteer to
make me this
entry?
Sept. 1 Sold 8,000 of shares acquired on
March 1 for $14 per share.
May I have a
volunteer to
make me this
entry?
Cash (8,000 x $14)
Paid-in Capital from TS
Treasury Stock (8,000 x $15)
112,000
8,000
120,000
(b) Restate the entry for September 1, assuming
the shares were sold for $12 per share.
Who will
make this
entry for me?
Cash (8,000 x $12)
96,000
Paid-in Capital from TS
20,000
Retained Earnings
Treasury Stock (8,000 x $15)
4,000
120,000
FYI
Not 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 Comment
The 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.