Alcoa Case Study Answers

The two primary reporting alternatives Alcoa has in accounting for the repurchase of the shares include converting to treasury stock or formally retiring stock (Spiceland, Sepe, Nelson & Thomas, 2016). With either choice, the total shareholders’ equity would be equivalent: the cash and shareholders’ equity would decrease since cash is paid to repurchase the stock. By changing it to treasury stock, the cost is reported as a decrease in total shareholders’ equity. The purchase of the treasury stock would be accounted for by debiting the treasury stock account and crediting cash for the cost. Per Merrit (n.d.), the treasury stock would be on a separate line as an unallocated reduction in the shareholders' equity. This treasury stock is issued, but they are not part of common stock outstanding. Per Carter (n.d.), the balances are reinstated to the original amount in the common stock and paid-in capital—excess of par accounts if the stock is formally retired. If there are any increase in sales or repurchases of the shares, then it will be reflected in the paid-in capital share repurchase account. However, if there is a net decrease in the sales or repurchases, then it will be shown as a decrease in retained earnings. If Alcoa resells the treasury stock for an amount greater than the cost, they should debit cash for the sales price, credit treasury stock
for the cost, and credit additional paid-in capital from reacquired stock for the excess of the selling price over the cost (Spiceland, Sepe, Nelson & Thomas, 2016).
Requirement 2
There are two primary choices that Alcoa can completing the accounting for the stock split: record it as a stock dividend or do not make a journal entry (Averkamp, n.d.).
First choice would entail Alcoa to account for the stock split by debiting paid-in capital for the par per share multiplied by the shares distributed. Then, Alcoa should credit common stock for the same quantity. The second option to account for the stock split would require no journal entry to be recorded. With either of these recordings, the par per share will not change so in turn the total shareholders' equity does not change (Averkamp,
n.d.).
Requirement 3 On the declaration date, the cash dividend should be accounted for since the liability for this is acquired on this date. Alcoa should debit retained earnings and credit cash dividends for the 25 cents per share multiplied by the number of shares outstanding. This cash dividend is a current liability since it is payable within one year. The balance sheet would have an increase in current liabilities and a decrease in retained earnings, since this cash will be distributed to the shareholders (Blokhin, 2015). Per Romans 13:7 English Standard Version (ESV), “Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.” Even the Bible states that we must pay dividends to those it is owed.