Stock Redemption in accordance with GAAP
How do I record the purchase of stock from a shareholder for full redemption of shares? The shares will be retired by the SCorp. The shareholder owns 25%and will receive $100,000. Shareholder originally paid $2000 for common stock; $50,000 for additional paid in capital.
Common stock per balance sheet equals $8000, Additional paid in capital per balance sheet equals $50,000.
Do I debit additional paid in capital for 25% or do I debit additional paid in capital for the full $50,000?
The entry I propose is:
Common stock $2,000 debit
Addl Paid in cap $50,000 debit
Retained earnings $48,000 debit
Cash $100,000 credit
Or is the entry:
Common stock $2,000 debit
Addl Paid in cap $12,500 debit
Retained earnings $85,500 debit
Cash $100,000 debit
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