I also had a similar question in Wiley regarding APIC T/S vs C/S, and the answer explanation said that APIC from previous transactions can be used or alternatively entire debit to R/E.. wish I had an easy way to bring it up again.. edit.. found it.. this is on retirement but same concept right?
The stockholders’ equity section of Peter Corporation’s balance sheet at December 31, year 1, was as follows:
Common stock ($10 par value, authorized 1,000,000 shares, issued and outstanding 900,000 shares) $ 9,000,000
Additional paid-in capital (APIC) 2,700,000
Retained earnings (RE) 1,300,000
Total stockholders’ equity $13,000,000
On January 2, year 2, Peter purchased and retired 100,000 shares of its stock for $1,800,000. Immediately after retirement of these 100,000 shares, the balances in the additional paid-in capital and retained earnings accounts should be
$2,400,000
$ 800,000
The solutions approach is to make the journal entry to record the retirement.
Common stock 1,000,000
Additional paid-in capital 300,000
Retained earnings 500,000
Cash 1,800,000
Common stock is debited for $1,000,000 par value ($10 per share × 100,000 shares). APIC can be debited for either the APIC from previous retirements or the pro rata portion of APIC for the current issue; the second alternative applies to this question. One-ninth of the shares of common stock are retired, so one-ninth of APIC can be debited for $300,000. An additional debit to RE is required for $500,000 ($1,800,000 – $1,000,000 – $300,000). Therefore, the balances of APIC and RE after retirement of 100,000 shares are $2,400,000 ($2,700,000 – $300,000) and $800,000 ($1,300,000 – $500,000) respectively.
Formal retirement or constructive retirement (purchase with no intent of reissue) of stock is handled very similarly to treasury stock. When formally retired
dr Common stock xx
dr Paid-in capital in excess of par* xx
dr Retained earnings* xx
cr Treasury stock* xx
* Assuming a loss on the retirement of treasury stock
1. “Paid-in capital from treasury stock transactions” may be debited to the extent it exists
2. A pro rata portion of all paid-in capital existing for that issue (e.g., if 2% of an issue is retired, up to 2% of all existing paid-in capital for that issue may be debited)
Alternatively, the entire or any portion of the loss may be debited to retained earnings. Any gains are credited to a “paid-in capital from retirement” account.
FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio
BEC - 82 (5/8/15) Mostly Ninja MCQ, sprinkles of Becker lectures and Ninja Audio
REG - (8/14/15)
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