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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Treasury stock transactions

Lawn Spray Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On January 31 of the current year, Lawn Spray Inc. reacquired 50.000 shares of its common stock at $51 per share. On June 14, 24,000 of the reacquired shares were sold at $60 per share, and on November 23, 18,000 of the reacquired shares were sold at S56.

  1. a. Journalize the transactions of January 31, June 14, and November 23.
  2. b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?
  3. c. What is the balance in Treasury Stock on December 31 of the current year?
  4. d. How will the balance in Treasury Stock be reported on the balance sheet?

a.

To determine

Treasury Stock: It refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement.

To prepare: The journal entries for the purchase and sales of treasury stock.

Explanation

Record the repurchase of50,000shares of own stock at $51 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
January 31 Treasury Stock (50,000 shares × $51 per share) 2,550,000
     Cash 2,550,000
(To record purchase of treasury stock)

Table (1)

  • Treasury stock is contra-stockholders’ equity account with a normal debit balance. Thus, when treasury stocks are purchased, it decreases the stockholders’ equity account. In this case, it reduces the stockholders’ equity by $2,550,000. Therefore, treasury stock account is debited with $2,550,000.
  • Cash is an asset. It is decreased as cash is paid for the purchase of treasury stock. Therefore, the cash account is credited with $2,550,000.

Record the sale of 24,000 shares of treasury stock for cash at $60 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
June 14 Cash (24,000 shares × $60 per share) 1,440,000

     Treasury stock

(24,000 shares × $51 per share)

1,224,000

     Paid-in capital from sale of treasury stock

($1,440,000$1,224,000)

216,000
(To record sale of treasury stock for above the cost price)

Table (2)

  • Cash is an asset

b.

To determine
The balance in paid in capital from sale of treasury stock on December 31 of the current year.

C.

To determine
The balance in the treasury stock on December 31 of the current year.

D.

To determine

To describe: The way in which balance of treasury stock would be reported on the balance sheet.

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