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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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Treasury Stock Transactions

Bentonite Adhesives Inc. engaged in the following transactions during the current year:

  1. Repurchased 8,000 shares of its own $5 par common stock for S13 per share on January 14.
  2. Sold 2,600 of the treasury shares to employees for S8 per share on January 31.
  3. Repurchased 2,000 more shares of the S5 par common stock for SI 7 each on July 24.
  4. Sold the remaining 5,400 shares from the January 14 purchase and 800 of the shares from the J uly 24 purchase to employees for $9 per share on August 1.

Required:

  1. Prepare journal entries for each of these transactions.
  2. CONCEPTUAL CONNECTION Determine the effect on total stockholders’ equity for each of the four 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.

Requirement 1:

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
a. Jan. 14 Treasury Stock (8000 Shares @ $13) $ 104,000
Cash $ 104,000
(Being Treasury Stock Purchased)
b. Jan...
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 each transaction on total stockholder’s equity.

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