Wize University Introduction to Financial Accounting Textbook > Shareholders' Equity
Retiring No-Par Value Shares
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Retiring Shares
When a company repurchases its shares in an effort to increase the market price of the remaining shares, the repurchased shares must be retired (cancelled).
Retiring Shares
- Debit the shares account using the average issue price per share.
- Credit the cash account using the market price per share.
Repurchasing Shares above Average Issue Price
- Loss for the company
- Decreases contributed surplus and then retained earnings.
Wize Concept
Repurchasing shares above the average issue price only decreases retained earnings when the company has no contributed surplus.
Repurchasing Shares below Average Issue Price
- Gain for the company
- Increases contributed surplus
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Example: Retiring Shares
ABC Inc. has 10,000 outstanding common shares with a total book value of $250,000. On March 1st, the company repurchases and retires 1,000 shares when they were trading at $23 per share. On June 17th, the company repurchases and retires 1,000 shares when they were trading at $29 per share. At the beginning of the year the balance of contributed surplus was $700.
Prepare the journal entries to record the two repurchases.
Repurchase of 1,000 shares on March 1st for $23 per share
Repurchase of 1,000 shares on June 17th for $29 per share
Practice: Retiring Shares
The following is an excerpt of Brownstein Inc.'s statement of financial position at December 31st, 2022:
On April 12th, 2020 the company's shares were trading at $55 per share. The company repurchases 3,000 shares and retires them.
Transactions:
| Account | Debit | Credit |
|---|---|---|