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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

Biscayne Bay Water Inc. bottles and distributes spring water. On May 14 of the current year, Biscayne Bay Water inc. reacquired 23,500 shares of its common stock at S75 per share. On September 6, Biscayne Bay Water Inc. sold 14,000 of the reacquired shares at $81 per share. The remaining 9.500 shares were sold at S72 per share on November 30.

  1. a. Journalize the transactions of May 14, September 6, and November 30.
  2. b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?
  3. c. Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet?
  4. d. For what reasons might Biscayne Bay Water Inc. have purchased the treasury stock?

(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 of23,500shares of own stock at $75 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
May 14 Treasury Stock (23,500 shares × $75 per share) 1,762,500
     Cash 1,762,500
(To record purchase of treasury stock)

Table (1)

Description:

  • 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 $1,762,500. Therefore, treasury stock account is debited with $1,762,500.
  • Cash is an asset. It is decreased as cash is paid for the purchase of treasury stock. Therefore, the cash account is credited with $1,762,500.

Record the sale of 14,000 shares of treasury stock for cash at $81 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
September 6 Cash (14,000 shares×$81 per share) 1,134,000

     Treasury stock

(14,000 shares × $75 per share)

1,050,000

     Paid-in capital from sale of treasury stock

($1,134,000$1,050,000)

84,000
(To record sale of treasury stock for above the cost price)

Table (2)

Description:

  • 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 location where the balance in paid in capital from sale of treasury stock be reported on the balance sheet.

d.

To determine

To discuss: The reason, for which Incorporation B has purchased the treasury stock.

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