Purchased and Immediately Retired TS

In your workbook, it says that the journal entry for this one will be:

Common or Preferred Shares                          xx

APIC: (determined by previous entry)          xx

                          Cash (shares x market value or retirement value)   xx

Now how did this happen?

Take letter c of number 4 (long problems) for example.

You can actually make two journal entries for this.

Treasury Shares (P28 x 9,000)            112, 000

                             Cash                                                                       112,000

To record purchase of preferred stock

Preferred Stock (P20 x 4,000)                  80,000

APIC: Preferred Stock (P6 x 4,000)         24,000

Retained Earnings                                             8,000

                  Treasury Shares                                                           112,000

To record retirement of preferred shares.

However, notice that with these two entries, in effect, treasury shares will be cancelled out. Hence, you can condense this into one entry as follows:

Preferred Stock (P20 x 4,000)                  80,000

APIC: Preferred Stock (P6 x 4,000)         24,000

Retained Earnings                                             8,000

                             Cash                                                                   112,000

To record purchase and immediate retirement of preferred stock.

“In excess of…”

Example:

Alice, Capital, beginning: P 50,000

Carroll, Capital, beginning: P30,000

“Interest of 10% shall be paid on partner’s beginning¬†capital in excess of P40,000.

> This means that the interest will only apply to Alice, because her beginning capital is P50,000, and therefore exceeds P40,000.

> Computation should be as follows: P50,000 – P40,000 = P10,000

> P10,000 will be the amount that you will multiply to 10%, to obtain the interest allowance Alice will get.

> P10,000 x 10% = P1,000