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Intermediate Accounting: Reporting...

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

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Treasury Stock, No Par Propst-Steele Production Corporation’s accounting records provide the following information:

  1. 1. Issued 5,000 shares of no-par common stock at $15 per share.
  2. 2. Issued an additional 5,000 shares of 110-par common stock at $17 per share.
  3. 3. Reacquired 500 shares of its no-par common stock at a cost of $12.50 per share.
  4. 4. Reissued 200 of its treasury shares at $14 per share.
  5. 5. Reissued the remaining treasury shares at $11 per share.

Required:

Prepare journal entries to account for the preceding stock transactions of Propst-Steele Production, assuming it uses the cost method for treasury stock.

To determine

Prepare the journal entries to record the given transactions of Corporation P.

Explanation

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

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Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

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.

Prepare the journal entries to record the given transactions of Corporation P:

DateAccounts title and ExplanationDebit ($)Credit ($)
1Cash ($15×5,000shares)$75,000 
 Common stock, no par $75,000
 (To record the issue of common stock)  
    
2Cash ($17×5,000shares)$85,000 
 Common stock, no par $85,000
 (To record the issue of common stock)  
    
3Treasury Stock ($12

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