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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 May 27, Hydro Clothing Inc. reacquired 75,000 shares of its common stock at $8 per share. On August 3, Hydro Clothing sold 54,000 of the reacquired shares at $11 per share. On November 14, Hydro Clothing sold the remaining shares at $7 per share.

Journalize the transactions of May 27, August 3, and November 14.

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 journalize: The transactions of May 27, August 3, and November 14.

Explanation

Record the purchase of 75,000 shares of its own stock at $8 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
May 27 Treasury Stock (75,000 shares × $8 per share) 600,000
     Cash 600,000
(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 $600,000. Therefore, treasury stock account is debited with $600,000.
  • Cash is an asset. It is decreased as cash is paid for the purchase of treasury stock. Therefore, the cash account is credited with $600,000.
  • Treasury stock does not affect the net income, as the net income would be affected by change in revenues and expenses.

Record the resale of 54,000 shares of treasury stock for cash at $11 per share.

Date Account Titles and Explanation Debit ($) Credit ($)
August 3 Cash (54,000 shares × $11 per share) 594,000

     Treasury stock        

(54,000 shares ×$8 per share)

432,000

     Paid-in capital from treasury stock

(594,000$432,000)

162,000
(To record sale of treasury stock for above the cost price)

Table (2)

  • Cash is an asset

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