The following excerpt is from an article reported in the April 9, 2009, online issue of Reuters.
Adobe Systems Incorporated (Nasdaq: ADBE)—April 9, 2009 announces its Board of Directors has approved a new stock repurchase program that authorizes the company to repurchase in aggregate up to 20 million shares of the company's common stock. The Board also authorized an additional $500 million in funds to repurchase shares under its existing stock repurchase program designed to offset dilution from stock issuances.
The par amount per share for Adobe's common stock is $.0001. Paid-in capital—excess of par is $40.48 per share on average. The market price was $43 on April 9, 2009.
1. Suppose Adobe reacquires the 20 million shares through repurchase on the open market at $43 per share. Prepare the appropriate journal entry to record the purchase. Adobe considers the shares it buys back to be treasury stock.
2. Suppose Adobe considers the shares it buys back to be retired rather than treated as treasury stock. Prepare the appropriate journal entry to record the purchase.
3. What does the company mean by saying that the buyback will serve “to offset dilution from stock issuances”?