Treasury Stock

Cost Method

$50 par CS

1. Issued $60, 1000 shares

Dr. Cash 60,000

---Cr. CS 50,000

---Cr. APIC from CS 10,000

2. Purchased 1000 shares @55

Dr. Treasury stock 55,000

---Cr. Cash 55,000

3. Sold 1000 shares @$65

Dr. Cash 65,000

---Cr. Treasury stock 55,000

---Cr. APIC from treasury stock 10,000

OR 3. Retired 1000 shares

Dr. CS 50,000

Dr. APIC from CS 10,000

---Cr. Treasury stock 55,000

---Cr. APIC from treasury stock 5,000

1. Issued $60, 1000 shares

Dr. Cash 60,000

---Cr. CS 50,000

---Cr. APIC from CS 10,000

2. Purchased 1000 shares @70

Dr. Treasury stock 70,000

---Cr. Cash 70,000

3. Sold 1000 shares @$65

Dr. Cash 65,000

Dr. Retained earnings 5,000

---Cr. Treasury stock 70,000

OR 3. Retired 1000 shares

Dr. CS 50,000

Dr. APIC from CS 10,000

Dr. Retained earnings 10,000

---Cr. Treasury stock 70,000

Par Value Method

2.

Dr. Treasury stock 50,000

Dr. APIC from CS 10,000

---Cr. Cash 55,000

---Cr. APIC from treasury stock 5,000

3.

Dr. Cash 65,000

---Dr. Treasury stock 50,000

---Dr. APIC from CS 15,000

OR 3.

Dr. CS 50,000

---Cr. Treasury stock 50,000

2.

Dr. Treasury stock 50,000

Dr. APIC from CS 10,000

Dr. Retained earnings 10,000

---Cr. Cash 70,000

3.

Dr. Cash 65,000

---Dr. Treasury stock 50,000

---Dr. APIC from CS 15,000

OR 3.

Dr. CS 50,000

---Cr. Treasury stock 50,000

EPS for complex capital structure

If converted method (convertible bonds, convertible preferred stock)

Net income: 210,000

Weighted average # of shares outstanding: 100,000

convertible bonds to 6%, 20000 shares CS: 1,000,000

4/1 issued convertible bonds, par issue, 10%, 32,000 shares of CS: 1,000,000

Tax rate: 40%

N

Net income 210,000

6% convertible bonds 1000,000*0.06*(1-0.4)=36,000

10% convertible bonds1,000,000*0.1*(1-0.4)=45000

TOTAL=291,000

D

100,000

6% 20,000

10% 32,000/12*9=24000

EPS

EPS for simple capital structure

Basic EPS = (Net income-PS dividends) / Weighted-average # of CS outstanding

1)

Net income: 130,000

PS dividends: 10,000

10%, $100 par, 1000 shares

CS outstanding from Jan: 100,000

Shares issued in 10% stock dividends declared at April 1: 10,000

shares issued for cash at Jul 1: 20,000

N = 130,000-10,000=120,000

D = 100,000*1.1 + 20,000/12*6 = 120,000

2)

CS outstanding: 250,000

3/31 issued 50,000 shares

income: 700,000

PS dividends: 80,000

N = 700,000-80,000 = 620,000

D = 250,000 + 50,000/12*9 = 287,500

Ratio = 2.16

3)

Opening balance: 00,000

4/1 20% stock dividend: 20,000

7/1 stock issued: 50,000

9/1 stock issued: 30,000

12/31 ending balance 200,000

50,000/12*6 + 30,000/12*4 =35,000

100,000*1.2 = 120,000

35,000+120,000=155,000

4)

1/1 CS: 100,000

7/30 3 for 1 stock split

net income: 600,000

N = 600,000

D = 100,000*3 =300,000

Ratio = 2

5)

5% Cumulative PS $5 par: 1,000,000(2004), 1,000,000(2003)

CS $10 par: 60,000(2004), 50,000(2003)

APIC from CS: 50,000(2004).　10,000(2003)

net income: 650,000(2004), 500,000(2003)

6/30, 2004, new shares were issued

no dividend in 2003

in 2004, declared 200,000 dividends

2004

N = 650,000 - 1,000,000*0.05 = 600,000

D = 5,000 + 1,000/12*6 = 5500

Ratio = 109

2003

N = 500,000 - 1000000 * 0.05 = 450000

D = 50,000

Ratio = 90

*not the amount of dividends paid