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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 3,2019, Tommyboy Corporation repurchases 250,000 shares of its outstanding common stock for $18 per share. On May 1, 2019, Tommyboy sells 80,500 shares of treasury stock for $12 per share. On October 1,2019, Tommyboy sells 40,000 shares of its treasury stock for $31 per share.

Required:

  1. Prepare the journal entries to record these transactions.
  2. How will these transactions affect Tommyboy’s 2019 income statement?

Use the following information for Cornerstone Exercises 10-30 and 10-31:

Kellman Company purchases 110,000 shares of treasury stock for S8 per share on September 4, 2020

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.

Requirement 1:

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. 3, 2019 Treasury Stock (250000 Shares @ $18) $ 4,500,000
Cash $ 4,500,000
(Being Treasury Stock purchased )
May...
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.

Requirement 2:

To indicate:

The effect of the transaction on the income statement of the year 2019.

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