Question

The shareholders’ equity account balance of Guide Corporation as of December 31, 2019 are as follows:...

The shareholders’ equity account balance of Guide Corporation as of December 31, 2019 are as follows:

Ordinary share, P100 par, 50,000 shares

Authorized, 25,000 shares issued P2,500,000

Share Premium 500,000

Accumulated Profits/Retained earnings 1,000,000

Treasury shares, 2,000 shares at cost ( 320,000)

Total P3,680,000

On January 2, 2020, Guide sold the treasury shares on the open market at P200 per share.

What is the effect on the shareholders’ equity as a result of the sale of treasury shares?

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Answer #1

Journal For Sale of Treasury Stock :

Cash = Debit $ 400,000

Treasury Stock = Credit $ 320,000

Paid in Capital for Treasury Stock = Credit $ 80,000

The effect of Treasury Stock on Shareholder's Equity is as follows :

Shares issued = $ 2,500,000

Share Premium = $ 500,000

Accumulated Profit / Retained Earnings = $ 1,000,000

Paid in Capital on Treasury Stock = $ 80,000

Total Shareholder's Equity = $ 4,080,000

Hence, Shareholder's Equity increased = $ 4,080,000 - $ 3,680,000 = $ 400,000

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