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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Accounting for Treasury Stock

On January 20, 2019, Spring Hope Corporation repurchases 2,600 shares of its outstanding common stock for $9 per share. On April 3, 2019, Spring Hope sells 700 shares of treasury stock for $13 per share. On October 29, 2019, Spring Hope sells the remaining 1,900 shares of its treasury stock for $6 per share.

Required:

Prepare the journal entries to record these transactions.

To determine

Concept introduction:

Treasury stock:

Treasury stock is the shares bought back by the company itself. A company may purchase its own shares and the shares bought back are called treasury stock. The journal entries are made at the time of sale and purchase of treasury stock as follows:

  • For Purchase of treasury stock:

    Treasury stock account is debited and cash account is credited with the cost of treasury stock purchased.

  • For Sale / Reissuance of treasury stock:

    Cash account is debited for the amount received on sale of treasury stock and the Treasury stock account is credited with the cost of treasury stock. For the difference in cost and sale value, Additional Paid in Capital and Retained earnings accounts are adjusted.

To prepare:

The Journal entries to record the transactions.

Explanation

The Journal entries to record the transactions are as follows:

Journal Entries
Date Account Titles Debit Credit
Jan. 20, 2019 Treasury Stock (2600 Shares @ $9) $ 23,400
Cash $ 23,400
(Being Common shares purchased )
Apr...

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