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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

Paris Corporation provides travel planning services for large corporations across the world. On January 23, 2019, Paris Corporation repurchases 275,000 shares of its outstanding common stock for $12 per share. On May 19, 2019, Paris sells 100,500 shares of treasury stock for $8 per share. On November 1, 2019, Paris sells 60,000 shares of its treasury stock for $27 per share.

Required:

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

Use the following information for Brief Exercises 10-45 and 10-46:

Heitman Company purchases 170,000 shares of treasury stock for $11 per share.

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 explained as follows:

Journal Entries
Date Account Titles Debit Credit
Jan. 23, 2019 Treasury Stock (275000 Shares @ $12) $ 3,300,000
Cash $ 3,300,000
(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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