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21 January, 20:17

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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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  1. 21 January, 22:45
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    We have two journal entries to be able record the repurchase and retirement of the shares

    First journal to record the share repurchased

    Dr Treasury stock 8,910

    Cr Cash 8,910

    While the second journal is to record the retirement of share repurchased:

    Dr Common stock 1,100

    Dr Paid-in capital common stock 2,310

    Dr Retained Earning 5,500

    Cr Treasury stock 8,910

    To record the share repurchased:

    The Treasury stock account is debited with the amount that is equals to cash paid for stock that is been repurchased, therefore, offsetting entry is credit Cash account = Number of share repurchased multiply Price purchase

    = 1,100 * 8.1

    = $8,910

    Also, to record the retirement of share repurchased:

    The common stock account is been debited at the amount = Par value multiply by Share retired

    = 1 * 1,100

    = $1,100

    As one common stock is carried $2.1 value excess of par (which is calculated as 168,210 / 80,100); paid-in capital account is debited by $2,310 (1,100 * 2.1)

    The retained earning is been debited by the amount is calculated as follows,;

    Number of share retired multiply by (Price at retired - Par value - Excess of par value) = 1,100 * (8.1 - 1-2.1) = $5,500

    Treasury account is debited $8,910 to bring the balance of this account to zero as stocks repurchased are fully retired.
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