FA08HW5Solution - HW 5 10-57(15-20 min Account balances and entries in millions 1 Treasury stock 942 Cash 942 To acquire 7.9 million shares 2

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Unformatted text preview: HW 5 10-57 (15-20 min.) Account balances and entries in millions. 1. Treasury stock 942 Cash 942 To acquire 7.9 million shares 2. $4,633 million + $942 million – $4,767 million = $808 million. 3. Treasury stock 6.5 Cash 6.5 1/1/03 Stockholders’ equity = $5,993 – $6.5 = $5,986.5 4. Cash 9.0 Treasury stock 6.5 Capital in excess of par 2.5 3M might maintain an internal separation of its paid-in-capital and distinguish this as capital from a treasury stock transaction. The journal entry assumes this is not true. Many companies adopt a LIFO or FIFO cost flow assumption for treasury shares, most often FIFO. The problem could be read to imply specific identification, but this is rare. 10-57 (continued) 5. Cash 5.0 Capital in excess of par 1.5 Treasury stock 6.5 Some companies divide Additional Paid-in Capital into several separate accounts that identify different sources of capital, for example: Additional paid-in capital -- preferred stock Additional paid-in capital -- common stock Additional paid-in capital -- treasury stock transactions A consistent accounting treatment would call for debiting only Additional Paid-in Capital-Treasury Stock Transactions (and no other paid-in capital account) for the excess of the cost over the resale price of treasury shares. If there is no balance in such a paid-in capital account, the debit should be made to Retained Earnings. 11-38 (15-25 min.) Amounts are in thousands of dollars. 1. The balance sheet value of January 1 is the market value, 955,182. End of Period January February March Market values 980,160 940,000 960,000 Balance Sheet Presentation : Net trading portfolio 980,160 940,000 960,000 January February March Income Statement Presentation : Unrealized gain (loss) on trading portfolio 24,978* (40,160)** 20,000*** * 955,182 – 980,160 ** 980,160 – 940,000 *** 940,000 – 960,000 Current accounting rules require the recognition of changes in the market value of trading securities as gains or losses in the income statement. 11-38...
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This note was uploaded on 01/20/2012 for the course ACCOUNTING 101 taught by Professor Unknown during the Spring '08 term at Carnegie Mellon.

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FA08HW5Solution - HW 5 10-57(15-20 min Account balances and entries in millions 1 Treasury stock 942 Cash 942 To acquire 7.9 million shares 2

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