Refer to the information regarding Spader, Inc. in problem 35. By December 2009, Spader had 380,000 shares of issued and outstanding common stock. As a year-end bonus for Spader’s CEO, the company will give him 10,000 shares of Spader stock, which will be reacquired from the shares that are currently outstanding.
Required:
(a) Spader has one million shares authorized and only 380,000 issued. Provide an explanation why Spader cannot give its CEO 10,000 shares from the shares that have not been issued.
(b) Suppose that Spader reacquires 12,000 shares of its own stock on December 3, 2009, when the stock is trading at $40 per share. Prepare the journal entry to record this repurchase.
(c) Prepare the journal entry to give the reacquired shares to the CEO on December 31, 2009. Explain the effect of this transaction on the Common Stock account.