In Its 2010 Annual Report,Gamma Company Indicated That the Number

question 35

Essay

In its 2010 annual report,Gamma Company indicated that the number of common shares held in the treasury decreased from 45,546,171 in 2009 to 3,397,381 in 2010.The following also was reported:
By Board authorization,effective December 31,2010 the Company canceled 50 million shares of common stock held in treasury.As a result of the cancellation,common stock decreased by $125 million,capital in excess of par value of stock decreased by $228 million,and retained earnings decreased by $3,119 million.
The shares canceled or retired represent almost 25 percent of the shares of common stock issued by Gamma.Explain the accounting for the treasury shares by Gamma.Did the company buy any treasury shares during the year? Prepare the entry in journal form that was made to record the cancellation or retirement of the treasury shares.At what average price were the treasury shares purchased,and at what average price were they originally issued? What do you think was management's reason for purchasing the treasury shares? (Omit explanations.)

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Definitions:

5 C's of Credit

The 5 C's of Credit refer to the five key factors that lenders consider when evaluating a borrower's creditworthiness: character, capacity, capital, collateral, and conditions.

Collateral

Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default.

Credit Obligations

The responsibilities to repay debt incurred through borrowing or credit agreements.

Partially Assembled

Refers to products or goods that have been partially put together but require additional assembly or work to be considered complete.