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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Issuing and Repurchasing Stock

Mohawk Company had the following transactions related to its common and preferred stock:

Chapter 10, Problem 61E, Issuing and Repurchasing Stock Mohawk Company had the following transactions related to its common

Required:

Prepare the journal entries for 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 for the given transactions.

Explanation

The Journal entries for the given transactions are explained as follows:

Journal Entries
Date Account Titles Debit Credit
Mar. 22 Cash (180000 Shares @ $33) $ 5,940,000
Common Stock (180000 Shares @ $1) $ 180,000
Paid in Capital in excess of par- Common Stock (5940000-180000) $ 5,760,000
(Being common stock issued for cash)
Mar...

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