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In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2021 to discontinue accounting for reacquired shares as treasury stock. Instead, shares repurchased will be viewed as having been retired, reassuming the status of unissued shares. As part of the change, treasury shares held were reclassified as retired stock. At December 31, 2020, UMCâs balance sheet reported the following shareholdersâ equity:

($ in millions)
Common stock, $1 par $200
Paid-in capitalâexcess of par 800
Retained earnings 956
Treasury stock (4 million shares at cost) (25)
Total shareholdersâ equity $1,931

Required:
Identify the type of accounting change this decision represents and prepare the journal entry to effect the reclassification of treasury shares as retired shares.

Sagot :

Tundexi

Answer:

UMC Corporation has change its treatment of shares repurchase from treasury shares to shared being retired on purchase. This change is known as change in accounting principle.

Date      General Journal                       Debit'mil    Credit'mil

Dec 31   Common stock (4*$1)                    $4

              Paid-in-capital-excess of par       $16

              (800/200)*4

              Retained earnings (25-20)           $5

                      Treasury stock                                         $25

              (To record reclassification of treasury shares as retired shares)

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