FINANCIAL

ACCOUNTING & Reporting

(FINACC1)

SY 2022- 2023-1

Lecture: Acc. For Corporations

Teacher: Rogelio C. Conel ,Jr., CPA MBA

III. Treasury stock, also known as
treasury shares or reacquired stock,

• refers to previously outstanding

stock that has been bought back
from stockholders by the issuing
company. The result is that the total
number of outstanding shares on
the open market decreases.
• Is the number of shares that have
been repurchased from investors by
the company. It might sell the stock
at a later date to raise capital or it
might use it to prevent a hostile
takeover. Treasury stock reduces
total shareholders' equity on a
company's balance sheet.
A company lists its treasury stock as a
negative number in the equity section
of its balance sheet. Treasury stock
can also be referred to as "treasury
shares“, "reacquired stock” or “equity
reduction”.
Treasury stock can be retired or held
for resale in the open market.

Retired shares are permanently

canceled and cannot be reissued
later. Once retired, the shares are no
longer listed as treasury stock on a
company's financial statements.
• Treasury stock reduces total
shareholders' equity on a company's
balance sheet, and it is therefore a
contra equity account.
• The cost method of accounting
values treasury stock according to
the price the company paid to
repurchase the shares. Using this
method, the cost of the treasury stock
is listed in the stockholders' equity
portion of the balance sheet.
Illustrations – Treasury stock accounting

On Jan. 1, 20x1, the statement of financial

position of ABC Co. shows the following
information:

Capital stock (P100 per value) 800,000

APIC 160,000
Retained earnings 540,000
Total stockholders' equity 1,500,000
a. On Jan. 1, 20x1, ABC Co. reacquires
1,000 shares at P90.

1-Jan Treasury stock (1,000 x P90) 90,000

Cash 90,000
1-Jan Retained earnings- unrestricted 90,000
Retained earnings- appropriated 90,000
Unrestricted R/E – free for future distribution to
shareholders

Appropriated R/E – not available for distribution to

shareholders
b. On Sep. 1, 20x1, ABC Co. reissues the
1,000 treasury shares at P90.

1-Sep Cash 90,000

Treasury stock (1,000 x P90) 90,000
1-Sep Retained earnings- appropriated 90,000
Retained earnings- unrestricted 90,000
When T/S is reissued, the related appropriated R/E is
reverted back to Unrestricted R/E.
c. On Sep. 1, 20x1, ABC Co. reissues the
1,000 treasury shares at P140 (price > cost).

1-Sep Cash (1,000 x P140) 140,000

Treasury stock (1,000 x P90) 90,000
Additional paid-in capital-T/S 50,000
1-Sep Retained earnings- appropriated 90,000
Retained earnings- unrestricted 90,000
When T/S is reissued at more than the reacquisition
price, the excess of price over cost is credited to
APIC-treasury shares.
d. On Sep. 1, 20x1, ABC Co. reissues the
1,000 treasury shares at P60 (price< cost).
1-Sep Cash (1,000 x P60) 60,000
1) APIC-TS 0
2) Retained earnings 30,000
Treasury shares (1,000 x P90) 90,000
1-Sep Retained earnings- appropriated 90,000
Retained earnings- unrestricted 90,000
When T/S is reissued at below reacquisition price, the excess
of cost over the reissuance price is debited to the following in
order of priority:
1) To the outstanding balance of APIC-TS
2) to retained earnings if APIC-TS is insufficient
Retirement of Shares

Treasury stock can be retired or held

for resale in the open market.

Retired shares are permanently

canceled and cannot be reissued
later. Once retired, the shares are no
longer listed as treasury stock on a
company's financial statements.
Journal Entry for Retired shares

Accounting for the Retirement of Shares: Reverse

the par value and additional paid-in capital
associated with the original stock issue. Any
remaining amount is further charged to paid-in
capital (until the balance reaches zero) and
retained earnings.
Illustration 1:
Treasury Stock Purchase

Assume that Company A repurchases 10,000 shares

of its stock at $10 per share (total consideration is
$100,000). The shares come with a $1 par value.
Illustration 2: Journal Entry for Retired
shares
Assume that Company A wants to retire
10,000 shares that were purchased. The
original per-share issue price was $5.
IV. Additional Paid-in Capital

Shareholders' equity also includes the

amount of money paid for shares of stock
above the stated par value, known as
additional paid-in capital (APIC).

APIC is the difference between the par

value of common and preferred stock and
the price each has been sold.
APIC is derived from the difference
between the par value of common and
preferred stock and the price each has
sold for.

APIC only occurs when an investor

buys shares directly from a company
during a company's initial public
offering (IPO).
During its initial public offering (IPO), a
corporation entitled to set any price for its
stock that it sees fit.
Meanwhile, investors may elect to pay any
amount above this declared par value of a
share price, which generates the APIC.

Calculation formula:
APIC = (Issue Price – Par Value) x Number
of Shares Acquired by Investors
Illustration:
During its IPO phase the XYZ Widget Company
issues one million shares of stock, with a par
value of $1 per share. Investors bid on shares for
$2, $4, and $10 above the par value. Those
shares ultimately sell for $11, consequently
making the company $11 million.

In this instance, the APIC is computed as total

price ($11M) less the share capital at par value
($1M) = $10M. XYZ’s balance sheet Equity
section shall show:
Paid in capital (par $1) $ 1,000,000
APIC 10,000,000
Total paid in capital $11,000,000
 Journal entry to record the IPO.

Cash $11,000,000
Share capital $1,000,000
Additional paid-in capital $10,000,000

To record 1,000,000 IPO par $1 shares

subscribed at $2, $4, $10 per share.
Share Issuance Costs -
are expenditures such as regulatory fees,
legal, accounting and other professional fees,
commissions and underwriter’s fees, printing
costs of share certificates, documentary stamp
tax and other transaction taxes and fees.

These costs are deducted from additional

paid-in capital derived from the issuance and
subscriptions.

If APIC is insufficient, share issuance costs are

deducted from retained earnings.
Illustration of booking issuance costs:
On Jan. 1, 20x1, ABC Co. issued 1,000 shares with
par value of P100 for P120 per share. Share
issuance costs amounted to P5,000.
Jan. 1, 20x1
Cash (1,000 x P120) 120,000
Share capital (1,000 shares x par 100) 100,000
Additional paid-in capital (1,000 x (P120-P100)) 20,000
To record issuance of 1,000 shares at P120 per share

Jan. 1, 20x1
Additional paid-in capital 5,000
Cash 5,000
To record issuance costs of P5,000 incurred
DIVIDENDS
Dividend Payments

Dividend payments by companies to its

stockholders (shareholders) are
completely discretionary.

Companies have no obligation

whatsoever to pay out dividends until
they have been formally declared by the
board.
There are various kinds of dividends
that companies may compensate its
shareholders, of which cash and stock
are the most prevalent.

There are four (4) significant dates

related to dividends.
1. Declaration Date

The declaration date is the date on which the board of

directors announces and approves the payment of a
dividend. The declaration includes the size of the dividend
being issued and outlines the record date and payment date.

The journal entry to record the declaration of the cash

dividends involves a decrease (debit) to Retained Earnings
(a stockholders’ equity account) and an increase (credit) to
Cash Dividends Payable (a liability account).
2. Ex-Dividend Date

The ex-dividend date is the first day that a

stock trades without a dividend. The
company does not set the ex-dividend date
– the ex-dividend date is set by the stock
exchange where the company’s stock is
traded. The ex-dividend date typically occurs
up to three days before the record date.
Purchasers of shares on or after the ex-
dividend date are not entitled to a dividend.
3. Record Date
The record date, also known as the date of
record, is the date on which the investor
must be on the company’s books in order
to receive a dividend.

The date of record determines which

shareholders will receive the dividends.

There is no journal entry recorded; the

company creates a list of the stockholders
that will receive dividends.
4. Payment Date
The date of payment is the third important date
related to dividends. This is the date that dividend
payments are prepared and sent to shareholders
who owned stock on the date of record. The
related journal entry is a fulfillment of the
obligation established on the declaration date; it
reduces the Cash Dividends Payable account
(with a debit) and the Cash account (with a credit).
A property dividend occurs when a company declares and distributes
assets other than cash. The dividend typically involves either the
distribution of shares of another company that the issuing corporation
owns (one of its assets) or a distribution of inventory
A property dividend may be declared when a company wants to reward its
investors but doesn’t have the cash to distribute, or if it needs to hold onto
its existing cash for other investments. Related JE’s:
END OF SESSION