Hello, everyone. Today we're going to continue with an example about Contributed Capital, but instead of the issuance, we're going to take repurchase, purchase back or retiring the stock. A stock that was issued already and now the company goes and buyback, whether they are buying back for the purpose of reselling or re-issuing or buying back its own stock and retiring those. That's basically the bulk of the exercise that I wanted to discuss with you today. Let's get started. Universal corporation's balance sheet reported the following. I have a common stock outstanding 15,000 shares. The per value is $10 per share and the total is 150,000. Paid in capital in excess of per 75,000 and actually if you notice that this 15,000 times the $10 is the 150,000, while the 75,000 when I divide it by the 15,000. It seems that on average, because those shares might have been issued in different dates, the excess over the per Value or above the per value was $5. This piece of information will be important when we retire the stock. The following transactions occurred this year. A, purchased 80,000 shares of common stock to be held as treasury stock, that is purchasing for the purpose of re-issuing and I paid $60 per share. B, I sold 60 of treasury stock at 65 per share, so I bought them at 60, but I re-issued it at 65 portion of it. Out of the 80, I resold or I re-issued 60 shares. Later on, I re-issued the other 20 shares and those were re-issued at $50 or when the market price of the shares was $50. Letter D, I purchased 48 shares of common stock that were retired, so I purchased for the purpose of retiring, not for the purpose of re-issuing. I paid per share, $40 for each share. Let's take a look at how am I going to record each of those transactions. For the first one when I bought those 80 shares, I bought them for $60 per share. Then obviously I paid $48 thousand in total and that's why there were debited to the treasury stock and credit to the cash. In letter B, In the second transaction, I sold 60 shares and I sold them at $65, that means the total of 3,900 and that was collected. The treasury stock, which is going to be credited, treasury stock is a contra equity account. Contra equity account means debit by nature, and that's why I debited it when I generated the treasury stock. Because the treasury stock is reducing is because I sold those treasury stock that's why I'm crediting treasury stock for 3,600, which is simply the 60 shares times the $60 per share. The paid in capital for the share repurchase, that's a third paid-in capital account. There is a paid-in capital stock, paid-in capital preferred stock, and that's an additional one, paid-in capital just for the stock repurchase or share repurchase. To close the or to balance the journal entry I credit for 300. I want to give you a note that this PIC, share repurchase cannot have a debit balance, that's why if I actually had sold those shares more than what I originally purchased them at, which is the 65 more than 60. That's why the balance is a credit, the 300. If it was the other way around, I would not be able to debit the PIC share repurchase unless they already have a balance. This point is going to be clearly explained in letter B transaction, will look at it. I actually resold the 20 shares again. I sold it now at 50. Here you go, the PIC share repurchase C was debited, I can debit it because it has a balance of 300 and that's where the limit is at 300. If that was more, if the difference between what I originally purchased at, which is the 1,200 versus what I'm re-issuing it today was more than the 300, I would not debit the PIC share repurchase for more than the balance that they have because I cannot turn that into a debit balance. Letter d transaction. Here I wanted to explain what is happening in the journal entry. First of all, I'm going to start with the cash, the credit, because that is what I paid to purchase back those shares. I paid $40 for 40 shares, but I'm taking those and retiring them, so they were not recorded in the treasury stock at all. That's why I'm bringing back that original cost of those 40 shares that originally were issued, and that's why I'm debiting the common stock for whatever they were credited when I first issued those shares. The PIC, remember when I told you the 75,000 divided by 15,000, the $5 shares, that is the $5 average. In average that's how I collected more than the per value per share. That's why I introduced the PIC of the common stock by the 200, which is the 40 shares times the five. To close the gap between that 600 and this 1,000, I need to debit PIC share repurchase. You cannot debit the PIC share repurchase more than the 100, and that's what I was explaining in letter c transaction, that this 200 is within a credit balance of the 300 and for the PIC share repurchase. Now I don't have more than 100 and that's why whatever exceeded is to balance as debited to the retained earnings. The main idea is once you buy back, you will generate the PIC share repurchase, this PIC share repurchase cannot have a debit balance once the transaction will lead or need a debit side to balance then if you don't have a balance and the PIC share repurchase, you're going to turn to the retained earnings to debit for that amount. Thank you very much.
