No loss is recorded on the sale the difference is

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Applied Calculus for the Managerial, Life, and Social Sciences
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Chapter 6 / Exercise 41
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
** No loss is recorded on the sale. The difference is debited to Retained Earnings.Dec 2013—Retired remaining 300 shares of treasuryCommon Stock (300*$1 par) 300Paid-In Capital in Excess of Par (300*$14) 4,200Retained Earnings [300 × ($40 – $15)] 7,500Treasury Stock (300 × $40, the price we paid) 12,000Rules for Cost Method for Treasury StockCommon Stock is never changed until and unless shares are retired or issued. The mere acquisition of Treasury Stock does not cause a change in Common Stock. Therefore, Common Stock should be the most stable account on the balance sheet. Retained Earnings is often the scapegoat for transactions that cannot be debited elsewhere. This results in a reduction to Retained Earnings that does not come from the ordinary dividends. Retained Earnings can be lowered (debited) by:oDeclaration of dividends (whether cash or stock)oOperating losses (opposite of net income)oSale of Treasury Stock at an economic lossoRetirement of SharesoPreferred Stock Conversions to Common Stock at a lossoChanges in Accounting PrincipleoChanges in Accounting EstimatesoPrior Period Adjustments (e.g., Errors and Fraud)Treasury Stock- Par (Stated) Method of Accounting2012—Newly organized corporation issued 10,000 shares of common stock, $1 par, at $15:Cash 150,000Common Stock 10,000Paid-In Capital in Excess of Par 140,0002013—Reacquired 1,000 shares of common stock at $40 per share:Treasury Stock (1,000 * $1 par) 1,000Paid-In Capital in Excess of Par (1,000*$14) 14,000
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Applied Calculus for the Managerial, Life, and Social Sciences
The document you are viewing contains questions related to this textbook.
Chapter 6 / Exercise 41
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
Retained Earnings [1,000 x ($40 – $15)] 25,000Cash 40,0002013—Sold 200 shares of treasury stock at $50 per share:Cash 10,000Treasury Stock (200*$1 par) 200 Paid-In Capital in Excess of Par (the difference) 9,8002013—Sold 500 shares of treasury stock at $34 per share:Cash 17,000Treasury Stock 500Paid-In Capital in Excess of Par 16,5002013—Retired remaining 300 shares of treasury stock:Common Stock 300Treasury Stock 300 Comparison of Cost Method and Par (Stated) MethodAssuming we had $30,000 of Retained Earnings before the transactions took place. Equity RatiosA primary driver of an increase in stock price is profitability. Profitability refers to the return that the company earns (in other words, its net income).Two common ratios are used to evaluate stockholder profitability: oReturn on common equity oReturn on Common Equity = Net Income – Preferred Dividends / AverageCommon Stockholders’ EquityoEarnings per share (EPS).oEPS = Net Income – Preferred Dividends / Average Common Shares Outstanding
Economic Rate of ReturnPayouts to stockholders can also take the form of stock repurchases. As such, the stock repurchase payout ratio is computed by dividing common stock repurchases by net income. By using the dividend payout and stock repurchase payout ratios, stockholders can easilycalculate the total payout as Dividend Payout + Stock Repurchase Payout.

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