SOLUTION MANUAL

Unit 7

TREASURY SHARES

Exercise 7 1 Review Questions

1. Treasury shares are shares issued to stockholders but are later re-acquired by the issuing
corporation.
2. A corporation re-acquires its own shares of stocks for the following reasons:
a. To obtain stock to be used in acquisition of plant assets.
b. To improve earnings per share by reducing the number of shares outstanding.
c. To invest excess cash temporarily.
d. To support the market price of the stock.
e. To increase the ratio of liabilities to stockholders equity.
f. To obtain shares for conversion of other securities such as preferred stock.
3. Treasury share may be acquired either by purchase or by donation.
4. The two accounting methods of recording treasury share are the cost method and the par value
method. The method prescribed under Philippine accounting standards is the cost method.

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5. Treasury share is shown under the shareholders equity section of the statement of financial position
as a deduction.
6. If a corporation acquires treasury share, retained earnings/accumulated profits must be appropriated equal
to the cost of the treasury share acquired.

Exercise 7 2 Multiple Choice

1 D 6 C
2 A 7 A
3 C 8 C
4 C 9 A
5 C 10 C

Journal Entries

Exercise 7 -3
a Cash 96,000
Share Capital-Ordinary 80,000
Share Premium-Ordinary 16,000

b Treasury Share-Ordinary 21,000

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 Cash 21,000

c Cash 9,600
Treasury Share-Ordinary 8,400
Share Premium-Ordinary Treasury Share 1,200

d Cash 2,400
Share Premium-Ordinary Treasury Share 1,200
Accumulated Profit 600
Treasury Share-Ordinary 4,200

e Cash 2,000
Accumulated Profit 800
Treasury Share-Ordinary 2,800

f Accumulated profits 5,600

Accumulated profits Appropriated for 5,600
OrdinaryTreasury Shares

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Exercise 7 - 4
a Treasury Share-Preference 26,500
Cash 26,500

b Treasury Share-Ordinary 14,000

Cash 14,000

c Cash 10,000
Treasury Share-Ordinary 8,000
Share Premium-Ordinary Treasury Share 2,000

d Cash 10,000
Accumulated profits 600
Treasury Share-Preference 10,600

e Accumulated profits 24,900

Accumulated profits Appropriated for 15,900
PreferenceTreasury Shares
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 Accumulated profits Appropriated for Ordinary 6,000
Treasury Shares

Exercise 7 - 5
a Cash 45,000
ShareCapital-Ordinary, no par 45,000

b Received 200 donated shares from a

shareholder

c Cash 3,600
Donated Shares-Ordinary 3,600

Case 7-1
a Decrease in Shareholders equity by P80,000

b. Increase in total reserves by P4,000

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 c. Increase in cash by P9,000

d. Appropriations of P51,200

Case 7-2

1.Sale of treasury at premium (1,000 xP12) P12,000

Less Cost of treasruy (1,000xP10 ) 10,000
Total share premium P2,000
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2. No effect on share premium

3. Increase total share premium by P7,000.
4. Balance of Treasury shares account 1,000 x P10 = P10,000

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