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On January 15, 20X5, Entity A issues 100 shares at a price of $50 per share, resulting in total proceeds of $5,000. It makes this journal entry:
Cash $5,000
Equity $5,000
On August 15, 20X5, Entity A reacquires 20 of the shares at a price of $100 per share, resulting in a total price paid of $2,000. It makes this journal entry:
Equity $2,000
Cash $2,000
On December 15, 20X5, Entity A reissues 15 of the 20 shares it reacquired on August 15, 20X5, at a price of $200 per share, resulting in total proceeds of
$3,000. It makes this journal entry:
This case illustrates the effect on equity of treasury share transactions.
Facts
• At the beginning of 20X4, the amount of equity is $534,000.
• These transactions occur during 20X4:
Cash $3,000
Equity $3,000
CASE STUDY 4
• February 15: Dividends of $10,000 are paid.
• March 14: 10,000 shares are sold for $14 per share.
• June 6: 2,000 shares are repurchased for $16 per share.
• October 8: 2,000 shares previously repurchased are resold for $18 per share.
• Profit or loss for the year 20X4 is $103,000.
• No other transactions affect the amount of equity during the year.
Required
Indicate the effect of these transactions on the amount of equity and determine the amount of equity outstanding at the end of the year.
Solution
Date Equity
January 1, 20X4 Equity: opening balance $534,000
February 15, 20X4 Dividend paid – 10,000
March 14, 20X4 Issuance of equity +140,000
June 6, 20X4 Repurchase of equity – 32,000
October 8, 20X4 Issuance of equity + 36,000
December 31, 20X4 Profit or loss +103,000
December 31, 20X4 Equity: closing balance $771,000