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Treasury Stock Transactions
Garrett Inc. had no treasury stock at the beginning of the year. During February, Garrett purchased 12,600 shares of treasury stock at $23 per share. In May, Garrett sold 4,500 of the treasury shares for $25 per share. In November, Garrett sold the remaining treasury shares for $18 per share.
Required:
Prepare journal entries for the February, May, and November treasury stock transactions.
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.
The Journal entries for the given transactions are explained as follows:
| Journal Entries | ||||
| Date | Account Titles | Debit | Credit | |
| Feb. | Treasury Stock (12600 Shares @ $23) | $ 289,800 | ||
| Cash | $ 289,800 | |||
| (Being Treasury Stock purchased ) | ||||
| May... | ||||
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