1. TENTH CANADIAN EDITION INTERMEDIATE ACCOUNTING Prepared by: Lisa Harvey, CPA, CA Rotman School of Management, University of Toronto 1 CHAPTER 15 Appendix 15A Par Value and Treasury Shares Kieso Weygandt Warfield Young Wiecek McConomy

2. Par Value Shares No new share issues may have a par value attached to them (per CBCA) –Par value has no link to the share market value Allowed under certain provincial business corporations acts Common in the United States Accounting issues are only for par value shares currently issued and outstanding Copyright John Wiley & Sons Canada, Ltd. 2

3. Par Value Shares Issuing par value shares requires following equity accounts –Preferred or Common Shares Credited with the par value amount of shares issued –Contributed Surplus Difference between the par value of the shares issued and the value of asset received Copyright John Wiley & Sons Canada, Ltd. 3

4. Par Value Shares Copyright John Wiley & Sons Canada, Ltd. 4 Given: 100 shares – par value $5.00, issued for $1,100 cash Par value of issued shares: 100 shares x $5.00 $ 500 Value of asset received 1,100 Contributed Surplus $ 600

5. Par Value Shares Copyright John Wiley & Sons Canada, Ltd. 5 Journal Entry to Par Value Share Issue: Cash 1,100 Common Shares500 Contributed Surplus 600

6. Treasury Shares Repurchased shares that are not cancelled Not permitted under CBCA, but permitted in the United States and some provinces Accounted for using the single transaction method Copyright John Wiley & Sons Canada, Ltd. 6

7. Single Transaction Method The repurchase and subsequent re-sale, of the shares recorded as a single transaction Treasury Share account reported as separate line item within Shareholders’ Equity section Copyright John Wiley & Sons Canada, Ltd. 7

8. Accounting for Treasury Shares Copyright John Wiley & Sons Canada, Ltd. 8 Shares Repurchased DR Treasury Shares CR Cash, etc. Shares Re-sold DRCash CR Treasury Shares

9. Accounting for Treasury Shares Treasury Shares Re-Sold May be sold for more (or less) than paid when re-purchased If sold for more, Contributed Surplus is credited If sold for less, debit Contributed Surplus (if it is related to the same class of shares), then debit Retained Earnings Dividends on treasury shares should be reversed since a company cannot receive dividends on its own shares Copyright John Wiley & Sons Canada, Ltd. 9

10. Reporting Treasury Shares Shareholders’ Equity: Share Capital$ x,xxx Retained Earnings x,xxx x,xxx Less: Cost of Treasury Shares xxx Total Shareholders’ Equity$ x,xxx Copyright John Wiley & Sons Canada, Ltd. 10

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