VIPSolutionsgive full answer and give final summaryQuestion 4.2 (Total: 21 marks) Ocean Corp. has a single class of shares. As its year ended December 31, 2025, the company had 5,000,000 shares issued and outstanding. On the stock exchange, these shares were trading at around $7. In the company's accounts, these shares had a value of $50,000,000. The equity accounts also show $650,000 of contributed surplus from previous repurchases of shares. On January 15, 2026, Ocean repurchased and cancelled 250,000 shares at a cost of $7 per share. Later in the year, on August 20, the company repurchased and cancelled a further 475,000 shares at a cost of $14 per share. Required 1. Record the journal entries for the two share transactions in 2026.
Question:
give full answer and give final summary
Question 4.2 (Total: 21 marks)
Ocean Corp. has a single class of shares. As its year ended December 31, 2025, the company had
5,000,000 shares issued and outstanding. On the stock exchange, these shares were trading at around
$7. In the company's accounts, these shares had a value of $50,000,000. The equity accounts also show
$650,000 of contributed surplus from previous repurchases of shares.
On January 15, 2026, Ocean repurchased and cancelled 250,000 shares at a cost of $7 per share. Later
in the year, on August 20, the company repurchased and cancelled a further 475,000 shares at a cost
of $14 per share.
Required
1. Record the journal entries for the two share transactions in 2026.
This is AI generated Response.
Asked by: Dinil
Created at: 2026-01-09 08:32:54
Asked by: Dinil
Created at: 2026-01-09 08:32:54
Final Answer:
Rendered
Raw Text
Did you like this answer?
# Solution to Question 4.2
## **Background Information**
- **Shares issued & outstanding (Dec 31, 2025):** 5,000,000
- **Carrying value of shares:** $50,000,000
- **Implied stated value per share:** $50,000,000 / 5,000,000 = **$10 per share**
- **Contributed surplus from previous repurchases:** $650,000
### **Share Repurchase Details (2026)**
1. **Jan 15, 2026:** Repurchased & cancelled 250,000 shares at **$7/share**
2. **Aug 20, 2026:** Repurchased & cancelled 475,000 shares at **$14/share**
---
## **1. Journal Entries for the Two Share Transactions in 2026**
### **A. January 15, 2026 Repurchase (250,000 shares at $7/share)**
- **Total cost:** 250,000 × $7 = **$1,750,000**
- **Carrying value of shares repurchased:** 250,000 × $10 = **$2,500,000**
- **Repurchase at LESS than carrying value:**
- The **difference ($2,500,000 - $1,750,000 = $750,000)** is a gain, credited to contributed surplus.
#### **Journal Entry:**
| Account | Debit ($) | Credit ($) |
|---------------------------------|-------------|-------------|
| Share Capital | 2,500,000 | |
| Cash | | 1,750,000 |
| Contributed Surplus | | 750,000 |
---
### **B. August 20, 2026 Repurchase (475,000 shares at $14/share)**
- **Total cost:** 475,000 × $14 = **$6,650,000**
- **Carrying value of shares repurchased:** 475,000 × $10 = **$4,750,000**
- **Repurchase at MORE than carrying value:**
- The **difference ($6,650,000 - $4,750,000 = $1,900,000)** is a loss, debited to contributed surplus.
#### **Journal Entry:**
| Account | Debit ($) | Credit ($) |
|---------------------------------|-------------|-------------|
| Share Capital | 4,750,000 | |
| Contributed Surplus | 1,900,000 | |
| Cash | | 6,650,000 |
---
## **Final Summary**
- When shares are repurchased **below** carrying value, the difference increases contributed surplus.
- When shares are repurchased **above** carrying value, the difference decreases contributed surplus.
- **Journal entries:**
- **Jan 15:** Debit Share Capital, Credit Cash, Credit Contributed Surplus
- **Aug 20:** Debit Share Capital, Debit Contributed Surplus, Credit Cash
These entries ensure that the company's equity accounts reflect the repurchase and cancellation of shares at prices different from their carrying value.
📢 Instructions:
- Ask anything relatd to above question only.
- For new Question goto :