why does danone keep some of the repurchased shares in corporate treasury and not ca 600825

Share buybacks: economic rationale and financial reporting effects

Groupe Danone is the world’s #1 producer of fresh dairy products. The company is also among the world leaders in bottled water and several other food and beverage categories. Based in France, its net revenues in 2004 were €13.7 billion.

In 2004, the following transactions affecting shareholders equity took place:

• Dividends of €308 million were declared and paid.
• 2.6 million shares of common stock were bought back at an average price of €60.40. The shares were cancelled immediately after purchase.
• 750 000 shares of common stock (par value = €0.50) were reissued from corporate treasury at an average price of €51. The average price paid by Danone for the reissued shares was €74.67.

Required

1. Why do companies buy back their own shares?

2. Why does Danone keep some of the repurchased shares in corporate treasury, and not cancel them?

3. Give the summary journal entries to record all of the above events.