Chapter 11 Stockholders Equity Accounting 215 Winter 2026 Steph Grant 1 2 Early Retirement of Bonds Life of a bond Early Retirement Issuance Company sells bond and receives proceeds A company can buy back its bonds prior to maturity repaying back debt early by Company pays periodic interest payments Maturity Buying back the bond on the open market or Calling the bond if it is a callable bond Company pays principal face value and last interest payment Interest rates have declined significantly might buy back its current bonds and issue new bonds at When might a company want to retire a bond early It has excess cash on hand and wants to decrease its debt load the lower rate Early Retirement of Bonds Accounting What is the accounting Pays cash to retire the bonds Typical pay a call premium meaning the cash paid bond s face value Record a loss more common or gain on the retirement Dr Bond Payable Step 2 Remove this liability from B S Dr Loss on Bond Call Step 3 Plug If Cash Bond Payable Cr Cash Step 1 Cash paid for retiring bond Cr Gain on Bond Call Step 3 Plug If Cash Bond Payable Early Retirement Example A company retired bonds early with a face value of 200 000 by purchasing them on the open market for 1 075 of face value or 107 5 These bonds have an unamortized premium of 12 000 i e carrying value of 212 000 What is the journal entry that the company needs to record for the retirement of these bonds What if the carrying value of the bonds is 216 000 3 4 Plan for Today 1 Types of shares 2 Share repurchases and treasury stock 3 Dividends and stock splits 5 6 Differences Between Two Types of Stock Common Stock Certificate that represents an ownership equity interest in a company Preferred Stock Certificate that represents an ownership equity interest in a company and carries preferential treatment Right to vote Yes No Right to receive dividends Yes if declared Yes before common shareholders Right to assets In case of bankruptcy last in line Definition Other info In case of bankruptcy after creditors but before common shareholders dividends very common Dividends in May include the right to cumulative arrears Types of Shares Authorized of shares they can sell Issued of shares they have sold regardless of who is holding them now Outstanding of shares currently held by shareholders Treasury of shares held by the company repurchased shares contra equity 7 8 Types of Shares Shares authorized 100 000 Held by e rs o l d h a r e s h Shares outstanding 10 383 company Treasury stock 515 Shares issued 10 898 Shares unissued 89 102 Plan for Today 1 Types of shares 2 Share repurchases and treasury stock 3 Dividends and stock splits 9 10 What is Treasury Stock Repurchased shares Treasury shares Treasury shares are issued shares but not outstanding shares No dividends the company can t send money to itself No voting rights the company can t vote on its board of directors Repurchases are never classified as assets Why A company cannot own itself Instead treasury stock is a contra equity account which reduces total Shareholder Equity on the Balance Sheet Why Treasury Stock Why would a company buy back its own stock treasury stock 1 Stock is undervalued Signaling 2 Improve ratios 3 Issue stock based compensation Types of Shares Bed Bath Beyond BBBY Concludes Share Repurchase Plan Bed Bath Beyond Inc BBBY has completed its share repurchase program which was announced on Oct 29 Per the plan the company bought back roughly 11 million shares of its common stock at an average price of 21 Before the repurchase Bed Bath Beyond had 900 million shares authorized 343 million shares issued and 132 million outstanding How many shares does Bed Bath Beyond have authorized issued and outstanding after the repurchase 11 12 Accounting for Treasury Stock Share Repurchase Resell Treasury Stock Repurchased 1 000 shares at 10 per share Dr Treasury Stock XSE SE 10 000 Cr Cash A 10 000 Resell 500 shares at 15 per share Dr Cash A Cr Treasury Stock XSE SE Cr APIC SE 7 500 5 000 2 500 Resell 500 shares at 9 per share Dr Cash A Dr APIC SE 4 500 500 Cr Treasury Stock XSE SE 5 000 You Try Treasury Stock Journal Entries 1 Bed Bath Beyond repurchases 11 million shares of 0 01 par value common stock for 21 share What s the journal entry for the repurchase 2 Bed Bath Beyond reissues those 1 million shares of treasury stock at 30 share Record the journal entry 3 Instead what if Bed Bath Beyond had reissued the 1 million shares at 20 share Record the journal entry 13 14 You Try Apple spent 62 9 billion dollars on buying back its stock Does Apple s stockholders equity increase or decrease from this buyback What is the impact on shares authorized issued and outstanding from this buyback a SE increases Authorized Issued and Outstanding shares all stay the same b SE increases Authorized stays the same but Issued and Outstanding shares decrease by the number of shares bought back c SE decreases Authorized Issued and Outstanding all decrease by the number of shares bought back d SE decreases Authorized stays the same but Issued and Outstanding shares decrease by the number of shares bought back e SE decreases Authorized and Issued shares stay the same but Outstanding shares decrease by the number of shares bought back 15 16 Plan for Today 1 Types of shares 2 Share repurchases and treasury stock 3 Dividends and stock splits Stock Splits Stock splits shareholders receive additional shares of stock Do NOT record a journal entry but we do adjust par value and of shares issued and outstanding Stock splits will of issued and outstanding shares and market price per share Expressed in terms of a ratio of new shares old shares e g 2 1 or 3 2 After 4 1 split Example Shares issued and outstanding Par Book Value of Equity Market price per share Market Value of Equity Before split 1 000 1 1 000 100 100 000 After 2 1 split 2 000 0 50 1 000 50 100 000 Total stockholders equity remains the same before and after stock splits Stock splits do NOT change the market value of the company You Try Etsy has 110 000 outstanding shares Etsy s stock has a 0 01 par value Market value is 100 a share Suppose on January 1 Etsy declares and issues a 2 1 stock split Record the journal entry and impact on the par and market price for each one 17 18 Types of Dividends Cash dividends shareholders receive cash Stock dividends shareholders receive shares of stock Remember to record a journal entry Accounting differs depending on if a large or small stock dividend Total assets