The 2013 annual report for Golden Grains disclosed that 1 billion shares of comm

Question

The 2013 annual report for Golden Grains disclosed that 1 billion shares of common stock have been authorized. At the end of 2012, 780 million shares had been issued and the number of shares in treasury stock was 97 million. During 2013, the only common share transactions were that 18 million common shares were reissued from treasury and 24 million common shares were purchased and held as treasury Required: Determine the number of common shares (a) issued, (b) in treasury, and (c) outstanding at the end of 2013 (Enter your answers in millions) Number of Common Shares (in millions) (a) sued Stock (b) Treasury Stock (c) Shares Outstanding

Explanation / Answer

Treasury stocks are those stocks which have been purchased by the issuing corporation itself and does not retire them. For example, on 01.01.2018, A ltd issued 100 shares, now on 31.03.2018, it purchsed its own 40 shares from the market and held them. Note on 31.03.2018, issued shares still is 100 as the 40 shares acquired by A ltd is not retired and treasury stocks amount to 40 shares. Shares outstanding means shares of outsiders, hence in this shares outstanding is 100-40 i.e, 60 shares. If those 40 shares would have been retired by A ltd then Issued Shares & Shares outstanding would have been 60

When treasury stocks are acquired, the following entry is passed

Cash A/c Dr

To Treasury Stock

When treasury Stocks are sold at the purchase price, then the following entry is passed

Treasury Stock A/c Dr

To Cash A/c

Note: You can observe the above entry does not effect Issued capital

Now, in the given problem,

At the end of 2012, 780 million shares were issued and treasury stock was 97 million

Stockholders Equity as at 2012,

Paid in Capital

Common stocks, 1 billion shares authorised, 780 million issued, Shares outstanding (780-97) i.e. 683 million shares

Now, In 2013, 18 million shares were reissued from treasury stock and 24 million shares were purchased as common stock.

Here, reissued means sale of treasury stock and not issue of fresh shares, so my issued shares will remain at 780 million shares only.

Common Stocks as at 2013,

Particulars No of common shares (in millions) Authorised Stock 1 billion Issued Stock 780 millions Treasury Stock (97 -18+24) 103 millions Shares Outstanding 780-103 = 677 millions shares

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