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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

Entries for treasury stock

On January 31, Wilderness Resorts Inc. reacquired 22,500 shares of its common stock at $31 per share. On April 20, Wilderness Resorts sold 12,800 of the reacquired shares at 540 per share. On October 4r Wilderness Resorts sold the remaining shares at $28 per share. Journalize the transactions of January 31, April 20, and October 4.

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 transactions made on May 27, August 3, and November 14.

Explanation

Record the repurchase of 22,500 shares of own stock at $31 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
January 31 Treasury Stock (22,500 shares × $31 per share) 697,500
     Cash 697,500
(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 $697,500. Therefore, treasury stock account is debited with $697,500.
  • Cash is an asset. It is decreased as cash is paid for the purchase of treasury stock. Therefore, the cash account is credited with $697,500.

Record the sale of 12,800 shares of treasury stock for cash at $40 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
April 20 Cash (12,800 shares × $40 per share) 512,000

     Treasury stock        

(12,800 shares × $31 per share)

396,800

     Paid-in capital from treasury stock

(512,000$396,800)

115,200
(To record sale of treasury stock for above the cost price)

Table (2)

  • Cash is an asset. It is increased as cash is received from the sale of treasury stock

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