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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Treasury Stock Analysis Ray Holt Corporation has retained yon as a consultant on accounting policies and procedures. During 2019, the company engaged in a number of treasury stock transactions, having foreseen an opportunity to report its treasury stock as an asset and to recognize a profit in trading its own stock. The transactions were as follows:

  1. 1. Reacquired 100 shares of its $10 par common stock at $20 per share. The shares had originally been issued at $23 per share.
  2. 2. Reacquired 150 shares of its $10 par common stock at $24 per share. The shares had originally been issued at $23 per share.
  3. 3. Reacquired 50 shares of its $100 par preferred stock at $140 per share. The shares had originally been issued at $I70 per share.
  4. 4. Sold all common treasury shares held at $25 per share.
  5. 5. Reacquired 150 shares of its $100 par preferred stock at $130 per share. The shares had originally been issued at $170 per share.
  6. 6. Retired all preferred shares held in the treasury.

Required:

  1. 1. Next Level Is the corporation correct in assuming that its treasury stock is an asset and that it can recognize a profit or gain from its treasury stock transactions? Explain.
  2. 2. Next Level Prepare an analysis of treasury stock accounting for Mr. Robert Richter, the controller. This analysis should contain proper journal entries for each of the treasury stock transactions occurring during 2019, prepared using the cost method discussed in the chapter.
  3. 3. Next Level Conclude the analysis by discussing how “gains” on treasury stock are reported and how treasury stock is reported on a corporation’s balance sheet.

1.

To determine

Identify whether the corporation is correct in assuming that its treasury stock is an asset and that it can recognize a profit or gain from its treasury stock transactions, explain the same.

Explanation

Treasury Stock: The shares of a corporation which are bought back from the shareholders for cash but are not formally retired are referred to as treasury stock.

Identify whether the corporation is correct in assuming that its treasury stock is an asset and that it can recognize a profit or gain from its treasury stock transactions:

  • Treasury stock is a shareholders’ equity account...

2.

To determine

Prepare the journal entries for the given transactions occurring in 2019 under the cost method.

3.

To determine

Explain the way gains on treasury stock are reported and the manner treasury stock is reported on the corporation’s balance sheet.

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